Long-term trend intact for Infosys despite a slow Q4

ET Intelligence Group: The March quarter performance of Infosys may seem to be disappointing when compared with the analysts’ expectations and with the stellar numbers reported by the largest peer Tata Consultancy Services (TCS). But, the management commentary of the country’s second largest software exporter and its strong revenue growth guidance for the current fiscal year suggest that the subdued fourth quarter performance may be more of a period-specific event than a medium or long term trend.The fourth quarter revenue of Infosys grew by 2.8 per cent sequentially to $ 3,613 million compared with the expectation of nearly 4 per cent growth. It was also slower than the 5 per cent increase reported by TCS in its revenue at $ 5,989 million. The tepid sequential growth of Infosys can be attributed to its sustained performance in the previous three quarters of the past fiscal year (FY21) when its peers had reported either a fall or slower growth on a quarter-on-quarter basis. 82070732The trend is reflected in the full year performance. For FY21, revenue of Infosys grew by 6.1 per cent to $ 13,561 million while for TCS, it rose by 0.6 per cent to $ 22,174 million. Other top-tier peers including HCL Technologies and Wipro are yet to report the fourth quarter numbers.When incremental revenue is considered, Infosys added $ 781 million to the topline in FY21 from FY20 level compared with the addition of $ 142 million by TCS. This shows a better acceleration in the topline by Infosys during the past fiscal year.The momentum is expected to continue in the current fiscal given a sustained client addition and an upbeat forecast. Infosys signed $ 2.1 billion worth large deals in the March quarter taking the tally for the full year to $ 14.1 billion, a year-on-year jump of 56.7 per cent. For TCS, deal wins rose by 17.1 per cent to $ 31.6 billion in FY21.In addition, Infosys expects to clock 12-14 per cent growth in FY22 dollar revenue excluding currency fluctuations. In reported terms, the last time it had clocked a double-digit topline growth was in FY14 at 11.5 per cent. These factors hint at a sustained business momentum.Rising employee attrition however is a major concern that Infosys needs to address. It increased to 15.2 per cent in the March 2021 quarter from 10 per cent in the previous quarter. In contrast, TCS continued to report a drop in attrition with a reading of 7.2 per cent for the March quarter, a record low.The results so far reflect a sustained deal momentum which improves revenue visibility. A weaker trend in the rupee, if persisted over the next few quarters, would further improve realisations. While the current stock valuations of the top IT firms seem to be on a higher side, they take into account the expectations of a double digit revenue growth and stable margin trend for FY22.

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