Infosys Q4 earnings lower-than-estimates. How will stock price react on Monday?

The company announced its Q4 results after market hours on Thursday. Before the Q4 earnings report, Infosys stock dipped by 2.8% to end at ₹1,388.60 apiece on BSE. The stock dropped by over 3% on NSE. Infosys emerged as the top bear on both exchanges.

Now that Infosys has missed its quarterly estimates, how will the company’s stock price react?

It needs to be noted that trading in the stock market will be closed on Friday due to the Ambedkar Jayanti celebration. Thereby, trading will resume next week from Monday, and Infosys’ share price will react eventually.

As a good news to its investors, Infosys declared a final dividend of ₹17.50 per share for FY23. The company had earlier paid a dividend of ₹16.50 per equity share. Together, Infosys paid a total of ₹34 per equity share in FY23 — rising by 9.7% from the previous fiscal FY22.

In Q4FY23, the IT giant’s PAT came in at ₹6,128 crore down by nearly 16% QoQ but up by nearly 6% YoY. Similarly, revenue from operations dipped by 2.2% QoQ but was higher by 16% YoY to ₹37,441 crore in the quarter.

Additionally, Q4 year-on-year growth was 8.8% and the sequential decline was 3.2% in constant currency terms. The operating margin for the quarter was 21.0%. Free cash flow conversion was 95.3% for Q4. Continuing the recent trend, attrition declined further in Q4 to 20.9%. Infosys reduced its workforce by 3,611 employees to 3,43,234 headcount as of March 31, 2023.

Emkay Global expects Infosys share price to react ‘Negatively’ on Monday to the Q4 prints. Similarly, TD Cowen Insight believes the stock may face pressure post-Q4.

Emkay highlights that Infosys’ operating performance misses expectations. While among the positives were — moderation in LTM attrition by 340 bps QoQ, and steady deal intake.

As per TD Cowen’s report, Infosys posted lower-than-expected 4Q results with revenue/EPS missing consensus by -3%/-5% and an initial outlook on growth (4-7% y/y CC) and OM (20-22%) that also miss the mark. Unplanned project ramp-downs and delayed decision-making across telecom, BFSI, Hi-tech, and Retail, with more weakness in the US were conveyed due to broader macro uncertainty. Expect share pressure.

Meanwhile, Mitul Shah – Head of Research at Reliance Securities said, “Infosys reported a subdued performance in 4QFY23 with revenues 3.5% below our estimates. EBIT margin came in at 21%, 60bps below our estimate of 21.6% while its PAT is below our estimate by 8.2%.”

Shah added, “Revenue declined by 2% QoQ (up 6% YoY) in USD to $4,554 million, 3.5% below our estimate of $4,718 million. Sequential constant currency growth came in at -3.2% vs. our estimate of 0.4%, primarily due to ramp down of few deals, deferment, and cancellation of few discretionary projects.”

Further, Manish Chowdhury, Head of Research at Stoxbox said, “Infosys posted a dismal set of numbers in the fourth quarter, with all parameters coming below market expectations. Revenue in CC terms declined 3.2% sequentially, against expectations of a flattish growth, while margins were also under pressure at 21%. The FY23 revenue guidance miss along with sub-par FY24 guidance clearly shows that the global weak macroeconomic environment is weighing on the company’s performance, with discretionary projects taking a backseat and the decision-making cycle becoming longer. It would be interesting to see how the company steers through this difficult phase, especially against the backdrop of the demand weakening becoming more broad-based across business verticals.”

In Urmi Shah, Research Analyst, SAMCO Securities’ view, the company reported the worst decline in a decade in constant currency growth. Resultantly, the margins have seen a decline. The company’s FY24 constant currency revenue growth guidance of 4%-7% as against the current 15% indicates that the uncertainty continues. They saw an unplanned ramp-down in projects across business verticals due to the fickle market sentiment. The employee cost has, and hence, the margins were expected to normalise with slow hiring and attrition normalising but the management guidance sounds cautious about the same.

Urmi believes the increasing order book and decreasing attrition remain two key rays of growth for Infosys in the coming quarter.

On the stock price, Reliance Securities’ Shah said, “Infosys reported a subdued 4QFY23 performance. Margins were below our expectations. Management has guided FY24 revenue growth of 4%-7% in constant currency, and EBIT margin of 20-22%. Both the guidance are below our as well as street expectation and indicates challenging FY24. We currently have BUY recommendation on the stock, while post management discussion, we may revisit our view.”

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.