Net profit may remain flat QoQ as weak discretionary spend hits revenue

Infosys Ltd.'s Q4 earnings will likely be marred by continued weak discretionary spending in the US, with revenue falling and net profit little changed quarter-on-quarter. The Street expects the operating margin to expand moderately as cost optimisation continues under Project Maximus. India’s second-largest information technology company is set to declare its January-March earnings on April 18.

Seasonal impact will weigh on revenue, which may decline 1.1 percent sequentially to Rs 38,413 crore, according to the median estimate of 13 brokerages polled by Moneycontrol. Profit after tax is expected to remain flat both sequentially and YoY at Rs 6,128 crore, according to the estimates, dragged by lower revenue but supported by margins. Moneycontrol’s consensus estimates indicate the company’s operating margin will expand by 20 basis points sequentially, but analysts are divided. Brokerages Nuvama and ICICI Securities expect its operating margin to fall, while Axis Securities, Nomura, Emkay Global and Jefferies expect it to expand. Brokerages said operational efficiencies and lower onsite expenses will likely aid growth of margins, while being offset by wage hikes, higher visa costs, some furloughs, and revenue decline. Infosys rolled out wage hikes effective November 1, 2023, covering the entire employee pool.

Most brokerages expect Infosys to maintain its revenue growth guidance in the range of 2-7 percent for the financial year, even as a recovery in discretionary spending by clients remains elusive. Analysts at ICICI Securities are the most conservative, pegging the range at 1.5-2 percent, while brokerage Antique is the most optimistic, expecting growth guidance of 5-7 percent.

“Channel checks and peer commentaries do not indicate any immediate pick-up in short-term discretionary projects, with cost optimisation still imperative,” Axis Securities wrote in a pre-earnings research note. Riding on continued cost optimisation, analysts expect Infosys to maintain its operating margin guidance for FY25 in the range of 20-22 percent.