Infosys shares plummeted by 5% due to anticipated weak performance in Q4 and uncertainty surrounding the impact of wage hikes
Infosys: Shares of Infosys dropped by 5 percent in early trading on January 17, following a nearly 6 percent decline in the American Depository Receipts (ADRs) of the company listed on the New York Stock Exchange (NYSE) overnight. Despite exceeding market expectations with its October-December earnings, Infosys revised its revenue growth guidance, indicating a potentially weaker Q4 which may have contributed to the decline.
In Q3, Infosys secured significant deals, leading to an upward revision of its FY25 revenue growth guidance to 4.5-5 percent in constant currency terms. However, analysts, such as Jefferies, noted that while the FY25 revenue guidance was increased due to the Q3 performance, the unchanged ask rate for Q4 suggests a possible seasonal downturn.
Similarly, BoFA Securities predicted a 1 percent sequential revenue decrease in Q4, possibly due to reductions in third-party items or cautious management strategies.
During the post-earnings call, Infosys management acknowledged the anticipated softer Q4, attributing it to factors such as slight furloughs, fewer working days, and a decline in third-party revenue.
Additionally, concerns arose regarding the impact of the company’s wage hike plan, which is set to be implemented in two phases. The first phase was rolled out on January 1, with the second phase scheduled for April 1. Infosys stated that the margin impact of the wage hike will be felt in both Q4 FY25 and Q1 FY26, but did not provide specific details on the extent of the impact.
At 9:16 AM, shares of Infosys were trading at Rs 1,839 on the NSE. Stay updated with our market blog for real-time updates.
Despite some concerns, Infosys’ Q3 earnings and commentary showed positive results. The company reported a 4.6 percent sequential increase in consolidated net profit for Q3, reaching Rs 6,806 crore compared to Rs 6,506 crore in the previous quarter. Revenue also saw a 2 percent increase in rupee terms to Rs 41,764 crore, up from Rs 40,986 crore in Q2. A Moneycontrol poll of nine brokerages had estimated the IT major’s net profit at Rs 6,734 crore and revenue at Rs 41,206 crore for Q3, with Infosys surpassing these expectations.
The company’s EBIT margin improved by 20 basis points sequentially to 21.3 percent, with the FY25 EBIT margin guidance maintained at 20-22 percent.
Infosys also reported a Q3 large deal Total Contract Value (TCV) of $2.5 billion, with 63 percent of the deals being net new, slightly exceeding the previous quarter’s $2.4 billion despite seasonal challenges. CEO Salil Parekh expressed confidence in the improved deal pipeline moving forward.
Management highlighted improvements in discretionary spending within the financial services vertical in Europe and the retail and consumer segments in the US, which was seen as a key positive from Infosys’ Q3 earnings. This improvement in discretionary spending further supports the company’s growth outlook.
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