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Infosys revenue, fresher's hiring guidance raised further, margins resilient

ICICI Securities 13 Jan 2022

What’s buzzing:

Infosys reported strong numbers for Q3FY22 on the revenue side. Revenue guidance was increased further to 19.5-20% in CC terms vs. 16.5-17.5% in Q2 and 14-16% given in Q1 for FY22E. EBIT margin guidance was maintained at 22-24% for FY22E. Fresher hiring guidance increased from 45,000 to 55,000 for FY22E.

Context:

Revenues increased by 7% QoQ in CC terms while dollar revenues increased 6.3% QoQ vs our estimate of 4.0% QoQ in CC terms. It reported EBIT margin of 23.5% (vs. our estimate of 23.8%). As far as margins are concerned, there was wage hike impact (-80 bps) and impact due to lower utilisation (-40 bps). It was mitigated by cost optimisation (+60 bps), savings in SG& A (+40 bps) and cross currency tailwind (+20 bps), resulting in ~10 bps QoQ contraction. Revenue growth was across geographies & verticals. In terms of geographies, revenue growth was led by Europe, which grew 27.2% YoY, followed by North America, which grew 21.4% YoY in CC terms. In terms of verticals, growth was led by BFSI, retail, communication, which grew 15.5%, 19.8% and 22.2% YoY in CC terms, respectively.

Our Perspective:

Infosys continued to outperform TCS as far as revenue growth and margin performance is concerned. Infosys has seen healthy revenue growth and a strong deal pipeline especially on the Europe region where it is seeing a good traction. Margin resilience of the company vs. TCS has been a key highlight of the quarter. however, the supply side challenges continue to push LTM attrition higher. The company expects it to stabilise in a couple of quarters. The pricing commentary was also positive as clients now recognised supply side pressure being faced by the company. We expect the company to report revenue, EBITDA, PAT growth of 17%, 16.8%, 18.8% CAGR, respectively, over FY21-23E. We maintain our positive stance on the company.

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