Infosys Q4 Preview: Weak Demand and Wage Hike Will Cause Revenue and EBIT Margins To Be Muted

On Thursday, April 18, Infosys, the second-largest IT services firm in the nation, is scheduled to release its financial results for the fourth quarter that concluded on March 20, 2024 (Q4 FY24). Analysts predict that the firm will report mediocre Q4 results since its sales will either decline sequentially for the second straight quarter or stay unchanged, and its projection for FY2024–25 is probably cautious.

Analysts speculate that the company’s poor discretionary expenditure and bad seasonality may have contributed to a sequential fall in sales in the March 2024 quarter. Visa fees, subdued sales growth, and the effect of wage hikes are likely to have hurt the company’s EBIT margin.

Growth in Revenue

In a report, brokerage company Nomura predicted that Infosys’ constant currency (CC) revenue in Q4FY24 would have decreased by 1% on a quarter-over-quarter basis. It may be brought on by Infosys’s bad seasonality and ongoing decrease in discretionary expenditure.

HSBC, a different brokerage company, projects a sequential 0.2% drop in revenue in CC terms. Additionally, PNB Paribas and ShareKhan anticipate that Infosys’ revenue would decrease by 0.4% and 0.5%, respectively, in the quarter ending in March 2024.

Margin of EBIT

Nomura predicts that Infosys’ EBIT (profits before interest and tax) would remain steady on a quarterly basis. Experts predict that Infosys’ whole pay increase effect would manifest in Q4 of FY24, however, cost-cutting measures may mitigate it.

The effect of salary increases, visa expenses, and subdued revenue growth are expected to have caused Infosys’ EBIT margin to drop by 25 basis points to 20.3% in Q4 FY24, according to a report from BNP Paribas.

Income Forecasting

According to Nomura, the revised full-year revenue growth projection for FY24 is 1.5–2 percent YoY with a 20–22% EBIT margin. It anticipates Infosys to guide a 2–5% YoY revenue increase in CC terms with a 20–22% EBIT margin range for the next fiscal year.

HSBC analysts predict that Infosys’ FY25 sales projection will likely fall between 3 and 5 percent. According to them, the large-deal ramp-up expectation for the first quarter of FY25 would be crucial for the growth patterns for the whole year.

With a margin range of 20–22 percent, BNP Paribas anticipates Infosys to guide 3-5 percent YoY revenue growth in CC terms in FY25.

Information technology giant Infosys reported a 7.3% year-over-year decline in net profit to Rs 6,106 crore for the third quarter that ended in December 2023 (Q3 FY24). In contrast, its sales from October to December 2023 increased by 1.3% to Rs 38,821 crore from Rs 38,318 crore in the same period the previous year.

The net profit of Infosys was Rs 6,586 crore during the same quarter of the of the previous year. Infosys updated its revenue growth forecast for the current fiscal year from a previous estimate of 1-2.5 percent to 1.5–2 percent.

In the meantime, TCS, the biggest IT services business in India, said on April 12 that its March quarter net profit increased by 9.1% to Rs 12,434 crore, kicking off the Q4FY24 results season. According to an exchange report, the company’s net profit increased by 9% to Rs 45,908 crore in the fiscal year 2023–24.

The post-tax profit for Tata Consultancy Services from January to March of the previous year was Rs 11,392 crore. Its sales increased 3.5% year over year in the March quarter to Rs 61,237 crore.

Its operational profit margin increased to 26% from 1.50%.