Infosys Q3 results preview: Expect weak earnings with drop in revenue; margins to contract

Infosys, the second largest IT services company in India, is set to announce its earnings for the fiscal third quarter ended December 2023 on Thursday, January 11. The company is expected to report weak Q3 results with a sequential drop in revenues and fall in margins.

The overall Indian IT sector is expected to report subdued earnings for the third quarter FY24 as the ongoing weakness in IT services demand has worsened due to unexpectedly high furloughs.

Read here: Q3 result preview: IT firms expected to post muted revenue, subdued profit amid weak demand

Better utilisation, lower sub-con expenses and INR depreciation is likely to help offset part of the headwind for Infosys during the quarter.

Infosys Q3 revenue in USD terms is expected to decline 1.61% to $4,642 million from $4,718 million in Q2FY24 on account of continued macro challenges and additional 3Q seasonality. Revenue in INR terms in Q3FY24 is expected to fall 0.86% to ₹38,657 crore from ₹38,994 crore, QoQ. 

“We expect CC revenue to decline -1.6% QoQ. We don’t expect recent large deal wins to contribute meaningfully as ramp ups remain weak. Growth to be impacted due to furloughs, weakness in discretionary spending and cautious sentiment across major verticals,” said Phillip Capital.

Infosys is expected to report a net profit of ₹6,172 crore during the quarter ended December 2023, registering a drop of 0.64% from ₹6,212 crore in the September quarter.

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“Deal pipeline remains healthy while closure remains a bit challenging due to slower decision making and furloughs. However, the conversion remains on track. Operating margin is also likely to see an adverse impact, led by wage revision and weak growth,” said brokerage firm Motilal Oswal Financial Services.

The company’s operating margin is likely to contract by 100 basis points (bps) QoQ to 20.2% impacted due to two months of wage hikes impact in the quarter and furloughs.

Analysts expect Infosys to maintain its guidance on the back of healthy deal wins and strong pipeline, which are expected to support Q4FY24 growth.

Also Read: TCS Q3 Results Preview: Expect muted earnings growth; deal wins, outlook on near-term demand to be in focus

“We expect Infosys to fine tune its FY24E CC USD Sales growth guidance to 1-2% from current 1.0-2.5% with reiteration of EBIT margin guidance of 20-22%. We expect the order book for large deals to decline and normalise QoQ from a high base of 2Q,” Equirus Securities said.

Going ahead, key things to watch out for would be CY24 budget comments, demand commentary, deal ramp up visibility, vertical outlook, deal TCVs and pipeline, margin levers, attrition and pricing.

At 11:30 am, Infosys shares were trading 0.23% lower at ₹1,525.70 apiece on the BSE.

Read all Q3 results here

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