Infosys Q4 Results Review - Weak Performance To Impact FY24 Topline Delivery: Motilal Oswal

Motilal Oswal Report

Infosys Ltd. reported a weak Q4 FY23 revenue of $4.55 billion, down 3.2% QoQ in constant currency terms, significantly below our estimate of 0.6% QoQ CC growth. This was primarily due to broad-based reduction in business volumes, led by unplanned project ramp downs and delays in new businesses during the early part of Q4.

Additionally, the company saw one-off project cancellations and issues with a few clients, primarily on discretionary spending, which it expects to recover in Q1 FY24. Further, total contract value for large deals in Q4 stood at $2.1 billion, down 37% QoQ.

As a result of weak Q4 performance, Infosys missed its FY23 USD revenue growth guidance of 16.0-16.5% YoY CC, delivering only 15.4% YoY.

For FY24, Infosys has given USD CC revenue growth guidance of 4-7% YoY, citing increased uncertainty for the wider guidance band. This implies a compound quarter growth rate of 1.5-2.5% between lower and upper end of guidance band, which we consider to be ambitious. Ebit margin declined 50 bps to 21.0% in Q4, in line with our estimate.

Despite the impact of elevated employee cost, resulting from operating leverage, we found the margin management comforting.

Infosys guided for FY24 Ebit margin to be between 20-22%, in line with our expectation, and implies flat margin delivery at the mid-point of guidance band.

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