"Infosys Q1 Earnings: Key Factors to Watch for Optimistic Revenue Growth"

Infosys Q1 Earnings Report: Key Factors to Watch for Optimistic Revenue Growth

India’s second-largest IT firm, Infosys, is poised to reveal its Q1 FY25 earnings on July 18. The report is anticipated to show a promising sequential growth in revenue and margin expansion. This optimism is fueled by the ramp-up of large deals and the absence of previous one-time costs. Here are five critical themes to monitor as Infosys releases its quarterly results.

1. Revenue Growth and Margins

Several major brokerage firms predict a positive revenue and margin performance for Infosys. The absence of visa costs and the ramp-up of earlier large deals are expected to drive this growth. Brokerage houses such as Axis Securities and Kotak Institutional Equities foresee a 2.4% growth in revenue, the highest among large-cap peers. Emkay Global and Equirus share a similar outlook, citing improved operational efficiencies.

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Operating margins are expected to rise due to moderated onsite expenses, enhanced cost optimization, and the absence of one-off costs like those related to the previous quarter’s cyber incident at Infosys McCamish.

2. FY25 Guidance

Analysts expect Infosys to maintain its FY25 revenue growth guidance at 1-3% in constant currency (CC) terms and an EBIT margin guidance of 20-22%. This stability is deemed crucial amidst macroeconomic uncertainties in key markets like the US and Europe. Infosys has revised its annual revenue growth guidance five times in the last five quarters, the latest being in the March quarter when it reduced guidance to 1-3%.

Brokerage firms like Axis Securities and BNP Paribas anticipate Infosys will stick to its growth guidance. Kotak Institutional Equities believes that mega deals translating into actual revenue will boost growth for Infosys and the broader IT sector in FY25.

3. Large Deal Ramp-Up

Revenue growth is likely to be driven by the ramp-up of significant deal wins. Emkay Global forecasts a strong total contract value (TCV) for deals, despite macroeconomic challenges. The overall demand environment, particularly in core markets like the US and Europe, will be a focal point. Management commentary on navigating economic uncertainties will be closely watched.

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BNP Paribas and Kotak will seek clarity on client decision-making processes and demand outlook in key verticals such as BFSI and Hi-tech. Emkay Global expects clients to prioritize cost efficiency and consolidation deals in uncertain times.

4. Generative AI (Gen AI) Deals

Infosys has positioned its investments in generative AI (Gen AI) and digital technologies as growth catalysts. Updates on the traction of Gen AI offerings among clients will be eagerly anticipated. Gen AI is viewed as a significant driver for IT firms, especially as discretionary spending remains uncertain.

Infosys’ chairman, Nandan Nilekani, revealed that the company is working on 225 Gen AI programs for clients. Analysts will look for management updates on these initiatives’ progress.

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5. Employee Metrics

Infosys’ employee count will be another critical metric to watch. The company reported a decline of 25,994 employees for FY24, a first in 23 years, due to improving utilization rates and changing demand environments. Attrition rates have been declining consistently, indicating a cooling talent market.

Infosys has been cautious with campus hiring, opting for a flexible hiring model. In April, CFO Jayesh Sanghrajka mentioned that over half of the fresher workforce is hired off-campus. The company is yet to decide on its campus hiring target for FY25.

Conclusion

As Infosys prepares to release its Q1 earnings, these five themes will provide insights into the company’s performance and future outlook. Analysts and investors will closely monitor revenue growth, margin expansion, deal ramp-ups, generative AI initiatives, and employee metrics to gauge Infosys’ trajectory in the current financial year.

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