Infosys’s further cut in revenue growth guidance disappoints- Analysts

Post the bellwether Tata Consultancy Services failed to lift the sentiments on the IT pack, it was the turn of Infosys that reported its Q2 performance on Thursday. The nervousness in the market was visible as the Nifty IT Index was down 1.67% led by correction in share prices of TCS, HCL Technologies Ltd that were down 1.78-1.85%, while Infosys share price declined sharper 2.85%.

Infosys reported revenues at ₹38,994 Crore were up 6.7% y-o-y and 2.8% sequentially. The net profit at ₹6,212 was up 3.2% year-on-year and 4.5% sequentially. The operating profits at ₹8,274 crore also improved 5.1% year-on-year and 4.8% sequentially. The operating margins at 21.2% came lower than 21.5% in the year-old quarter though they improved by over 20.8% in the previous quarter.

Also Read- Infosys Q2 Results: Net profit inches up 3.2% on year to ₹6,212 crore

Looking at the fact that there were limited expectations from Q2FY24 earnings performance of Infosys amidst the weak demand environment, which has not changed much since June, the earnings performance was not disappointing, said analysts.

The constant currency revenues of Infosys at $4718 million also grew 3.6% year-on-year and 2.2% sequentially.

Nevertheless, disappointment came with the cut in revenue guidance. The company that had already cut its FY24 constant currency revenue growth guidance to 1-3.5% (from 4-7% earlier) further cut the upper band of its revenue guidance which now stands at 1-2.5%, The same indicates that the operating environment remains challenging said analysts and hence the road ahead still is not smooth. The guidance cut means the growth concerns have not bottomed out despite the company having a strong order book.

Also Read- Infosys declares interim dividend of ₹18 per share

Infosys’s announced new deal wins worth $7.7 billion, which was highest in past few quarters.

Analyst at Jefferies India Pvt ltd in their first cut post results said that given the strong 2Q and robust deal bookings, the guidance cut is a disappointment and indicates a weak second half. Management highlighted that while client interest in cost-efficiency programs remains strong and the company is gaining market share here, discretionary projects and large transformation programs are facing increasing scrutiny and are being ramped down, impacting the growth outlook. Furthermore, the large deal ramp-up is likely to be pushed out to the end of the year or even beyond, which contributed to the guidance cuts, said analysts at Jefferies

An analyst at a domestic brokerage said that the deal wins during this quarter will only start reflecting in revenues from Q4FY24 onward

“Infosys Q2 earnings are in line with markets expectation but the company trimming its revenue guidance would be negative for the stock, said Prashanth Tapse, Senior VP (Research), Mehta Equities Ltd. FY24 Guidance was revised downwards and would put pressure on prices to sustain while it has maintained margins. Technically the last-minute fall in prices shows that results were not in favour of bulls, hence a gap down opening between ₹1400-1420 could be seen in the opening trade, said Tapse.

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Updated: 12 Oct 2023, 07:17 PM IST