Infosys Quarterly Earnings & Highlights
Q4FY23 Result Analysis
Result Highlights
- The company has reported negative topline growth of 3.2% QoQ, in cc terms and decline in margin of 50bps on QoQ basis to 21% vs 21.5% Q3FY23. However, on a full year basis FY23, growth was below the guided range of 16-16.5%, where Infy has delivered 15.4% cc growth in FY23 and the margin landed at 21% in FY23. Decline in the performance due to project getting cancelled and slowdown in North America region.
- The company clocked deal TCV of $2.1bn, which is lower than preceding quarter. Deal size is getting impacted due to delayed in decision making and cautious optimistic outlook by the enterprises.
- For FY23, US$ 1 mn clients stood at 922 (increased by 69 on a YoY basis); US$ 10 mn clients stood at 298 (increased by 23 on a YoY basis); US$ 50 mn clients stood at 75 (increased by 11 on a YoY basis) and US$ 100 mn clients stood at 40 (increased by 2 on a YoY basis).
- Digital business grew by 15% in cc terms. Lower than the earlier growth of 35%+ from the same.
- Total active clients increased by 131 during the year and stood at 1,872.
- Attrition came in at 20.9% against 24.3% in 3QFY23. Quarterly annualised attrition reduced by over 4% sequentially and lowest in the last nine quarters (well below pre-pandemic levels).
- On employee metrics, total employee stood at 343,234 versus 314,015 in 4QFY22 and 346,845 in 3QFY23.
Digital Business Highlight
Digital (up 15.0% YoY in cc terms), from demand for transformational services, now contributes 62.9% of revenue (versus 59.2% in 4QFY22). Within Digital, Cloud is gaining significant traction and is growing at a very rapid pace. For FY23, the revenue contribution from digital increased to 62.2% from 57% in FY22 and clocked the revenue of US$ 11,321 mn in FY23 (versus US$ 10,989 mn in FY22).
Vertical Wise Growth
- During Q4FY23 on YoY basis, BFSI up 0.4% in cc terms, Manufacturing up 26.5% YoY in cc terms, Retail up 12.6% in cc terms, Lifesciences up 15.7% YoY in cc terms, Hi-tech up 3.7% YoY in cc terms, Energy & Utility up 17.1% YoY in cc terms, Communications up 0.3% YoY in cc terms and Others up 13.4% YoY in cc terms.
- For FY23 on YoY basis, BFSI up 4.1%, Manufacturing up 31.4%, Retail up 10.6%, Lifesciences up 9.3%, Hi-Tech 9.7%, Energy & Utility up 18.8%, Communications up 10.4% and Other up 12.5%.
Geographic Wise Growth
- Europe region again led the growth in 4QFY23, up 20.3% YoY in cc terms, North America up 6.0% YoY in cc terms, India down by 7.1% YoY in cc terms and RoW up 3.4% YoY in cc terms.
- For FY23, the growth was led by Europe region; North America reported 11.9% growth on a YoY basis.
Management Growth Guidance
- Revenue guidance – 4 to 7% in cc terms
- Margin guidance – 20 to 22%
Concall Highlights
- Due to several individual clients' ratcheting down discretionary spending and delayed client decisionmaking on new deals, 4QFY23 performance came in lower than anticipated. The business also had certain one-time income consequences, such as project cancellations, etc.
- The company is seeing an acceleration in negotiations for cost optimisation, according to the management, and they anticipate this trend to continue in the upcoming quarters. In this quarter, the company reported closing 17 significant deals. The management also stated that a lot of opportunities are being created as cost optimisation is currently at the top of the list. Strong huge deal pipeline with several of these involving consolidation and efficiency improvements.
- During Q4FY23 on YoY basis, BFSI up 0.4% in cc terms, Manufacturing up 26.5% YoY in cc terms, Retail up 12.6% in cc terms, Lifesciences up 15.7% YoY in cc terms, Hi-tech up 3.7% YoY in cc terms, Energy & Utility up 17.1% YoY in cc terms, Communications up 0.3% YoY in cc terms and Others up 13.4% YoY in cc terms.
- Infosys gave revenue guidance for FY24 and expects to grow by 4-7% on a YoY basis
FInancial Performance
Q4FY23
FY23
Outlook
Budget cuts, decision-making delays, and softness in the BFSI sector were some of the headwinds that the IT sector experienced during the quarter. Together with TCS, these factors also had an impact on Infosys's performance, which resulted in a disappointing quarter for the company. However, we had not anticipated negative growth. On a quarter-over-quarter basis, revenue growth was cc negative 3.2%, mostly as a result of projects being cancelled and the US region's difficulties (particularly in the BFSI vertical). The company's margin came in at 21%, 50 bps lower than the prior quarter, as a result of decision-making being delayed and discretionary spending being dialled down (according to management, this had a one-time impact).
As a result of the aforementioned issues, we anticipate that there will be near- to medium-term headwinds in the sector. However, management has also provided lower growth and margin guidance for FY24, which is a definite sign of the impending slowdown in IT budgets (especially from the BFSI vertical side). PE 18x FY25E EPS.
