Infosys Q1 Results Preview: Quantum of deal wins, attrition trends, revenue & margin outlook key monitorables

Infosys Q1 preview: Infosys is slated to release its June quarter numbers (Q1FY24) on July 20 (Thursday). The firm is expected to follow its peers' suit and post soft numbers for the first quarter of the current fiscal. IT stocks have been hammered for around a year owing to tough macroeconomic conditions, especially due to fears of a recession in the US economy. However, in the last few sessions, the IT universe has seen immense buying interest. On Tuesday, the technology stocks led the gains, and Infosys (up nearly 4 per cent) emerged as the biggest gainer on the index. The stock gained after the Salil Parekh-led company said it entered into a framework agreement with one of its existing strategic clients to provide artificial intelligence (AI) and automation-led development, modernisation, and maintenance services. The total client target spend over five years is estimated at $2 billion, the company said in its statement.

Let's take a look at what analysts expect from the IT behemoth's Q1 numbers.

IDBI Capital

The brokerage has forecast revenue growth to be flat in CC terms with a cross-currency tailwind of 24 bps. Growth is expected to be muted due to delayed decision-making by clients and a reduction in discretionary spending. "We expect earnings before interest and tax (EBIT) margin to come in at 21 per cent; flat QoQ," it said. The net profit is seen at Rs 6,107.2 crore, down 0.3 per cent QoQ and up 13.9 per cent YoY. Revenue in US dollar terms is expected to slip 1.5 per cent QoQ to $2,810 million and up 1.1 per cent YoY. In rupee terms, revenue is expected to rise 6.8 per cent YoY to Rs 22,987.6 crore. On a sequential basis, the figure will slip 0.9 per cent. EBIT is seen at Rs 7,891.8 crore, up 0.2 per cent QoQ and 14.1 per cent YoY.

Key things to watch out for

1) Large deal pipeline and wins; 
2) impact on discretionary spending; 
3) Attrition level and trends; 
4) margin outlook; and 
5) outlook on Telecom, retail, BFSI, and Hi-tech verticals 
6) Impact on revenues due to leadership changes 
7) Outlook on the conversion of pipeline and project run-offs

Kotak Institutional Equities

The low base of the March 2023 quarter, which also included revenue reversals (close to 1 per cent of revenues), sets the platform for moderate growth in the June quarter. High billing days also help. Headwinds include the full-quarter impact of project cancellations that occurred in the month of March 2023 and general weakness in discretionary spending, especially in North America. 

"We expect a 30 bps qoq decline in EBIT margins. Headwinds in the quarter are in the form of higher variable compensation (~80% versus 60% in the March 2023 quarter), leading to a 100 bps impact. Provision for post-sales client support (as opposed to reversal) is another 30 bps headwind," the brokerage added. 

Deal TCV and pipelines will take centre stage. Large deals will be in focus. Quantum of pipe, the nature of large deals, the pace of decision-making, and drivers of consolidation trends will be important focus points. "We expect a healthy TCV of wins, powered by large deals," analysts at the brokerage firm wrote in the earnings preview note.

"We expect Infosys to tighten revenue growth guidance to 4-6% from 4-7%. The EBIT margin guidance band of 20-22% will likely be unchanged. The focus will be on senior management attrition after a couple of senior leadership exits," the report added. 

Infosys share price

Over the past three months, the stock has gained 20 per cent, Trendlyne data show. In comparison, the Nifty IT index has risen 17.55 per cent while the Nifty 50 index has rallied 12.09 per cent (as of the July 18 close).