Infosys’ Q4FY23 results fell short of estimates due to a 3.2%q-o-q cc (constant currency) decline in revenues, mainly caused by unplanned project rampdowns in BFSI, Communications, and Hitech verticals in North America. These rampdowns affected utilisation, which ultimately reduced margins by 50bps q-o-q. Additionally, the large deal TCV at $2.1 bn was lower than expected, and headcount declined by 3.6K. In light of the uncertain demand outlook, Infosys has offered a FY24 guidance of 4-7% for revenue growth and 20-22% for margins.
All round miss in Q4: Infosys’ Q4FY23 revenues of $4.7bn, down 3.2% q-o-q in cc terms, missed our and consensus estimates. for FY23, Infosys delivered 15.4% y-o-y cc growth which was lower than its guidance range of 16-16.5% given in the previous quarter. Ebit margins at 21% were down 50bps q-o-q also below estimates due to lower-than-expected revenues. Profits at Rs 61 bn, up 8% y-o-y, also missed estimates, led by the revenue beat and higher other income.
Soft deal wins and growth guidance: Infosys booked large deals worth US$2.1bn, down 8% y-o-y, which was soft. Net new deal wins at US$440m was the lowest in three years. While management highlighted that deal pipeline remain strong and includes several mega deals, closures are taking time and given the uncertain environment, Infosys has given a soft 4-7% y-o-y cc growth guidance for FY24. While headcount declined by 3.6K in Q4, for FY23, headcount additions were healthy at 29K – its second highest in a decade.
Margins decline q-o-q as lower subcon offsets higher pass through: Infosys’ margins fell 50bps q-o-q to 21% due to project rampdowns which led utilisation levels falling by 200bps q-o-q leading to 130bps q-o-q rise in employee costs (% sales). This was partly offset by lower subcontracting costs (-50bps) and lower passthrough costs (-30bps). Infosys achieved the lower end of its FY23 margin guidance of 21-22% and has guided for 20-22% margins in FY24. Infosys has announced a final dividend of Rs 17.5/share, implying a total dividend of Rs 34/share in FY23.