Infosys, one of India’s leading IT companies, is expected to announce its financial results for the third quarter of FY24 today. Analysts predict a decline in profit by 7% compared to the previous year, citing wage hikes in November as a significant factor. The company’s FY24 guidance and the recent termination of a $1.5 billion AI deal will also be closely watched.
Infosys Q3 Preview: Lower Revenue Growth Expected
Estimates suggest that Infosys will experience a 1.8% decline in revenue growth in constant currency terms, with approximately 20 basis points cross-currency headwinds. The company is likely to face challenges in the December quarter, including lower pass-through revenues, an increase in furloughs, and weakened discretionary spending.
Impact of Wage Hikes and Discretionary Spending
Infosys is expected to report a decline in operating margin due to the salary hikes implemented in November 2023. Analysts predict a decrease of around 95 basis points quarter-on-quarter (QoQ) in EBIT margins. Discretionary spending cuts and furloughs are also anticipated to contribute to a revenue decline of 1.8% in constant currency terms.
Focus on FY24 Revenue Guidance and AI Deal Termination
Shareholders will closely monitor Infosys’ commentary on whether the company will revise its FY24 revenue guidance further. In addition, the termination of a $1.5 billion AI deal will be of significant interest. Infosys had previously lowered its revenue guidance to 1-2.50% post-September quarter results, and analysts expect a further revision.
Analysts’ Expectations and Revenue Projections
Brokerage firms estimate Infosys’ Q3 profit to range between Rs 5,960 crore and Rs 6,142 crore, reflecting a YoY fall of approximately 7%. Revenue growth is predicted to be muted at around Rs 38,660 crore. The absence of mega deals and sustained weak demand are expected to impact revenue and deal momentum in the quarter.
Challenges and Industry Headwinds
The December quarter is traditionally a weak period for IT firms due to high furloughs. Infosys’ EBIT margin is expected to be negatively affected both sequentially and yearly due to two months of wage hikes. Additionally, weak macros, higher deal scrutiny, and decision-making delays pose challenges to revenue growth for IT service companies.
What is the expected decline in Infosys’ Q3 profit compared to the previous year?
- Analysts predict a YoY fall of around 7% in Infosys’ Q3 profit.
How will wage hikes impact Infosys’ operating margin?
- Wage hikes implemented in November are expected to result in a decline of approximately 95 basis points QoQ in Infosys’ operating margin.
- Shareholders will be closely watching for any revisions in the company’s FY24 revenue guidance and updates on the recent termination of a $1.5 billion AI deal.
What factors are expected to contribute to a revenue decline for Infosys in Q3?
- Lower pass-through revenues, increased furloughs, and weakened discretionary spending are anticipated to impact Infosys’ revenue growth in Q3.
What challenges do IT service companies face in the current quarter?
- Weak macros, higher deal scrutiny, and decision-making delays pose challenges to revenue growth for IT service companies in a seasonally soft quarter.