Infosys Q4 results: Strong revenue growth likely, salary hikes may hit margins; 5 things to watch out for

Infosys share price surged 8.5 per cent in Jan-Mar 2021, and 11 per cent so far this year (YTD)

IT bellwether Infosys is scheduled to announce its fourth-quarter results later today. The company will also consider a final dividend for FY21 along with a proposed share buyback. Most brokerage firms and analysts expect IT companies to post robust revenue growth. Infosys share price surged 8.5 per cent in Jan-Mar 2021, and 11 per cent so far this year (YTD). During the quarter ended March 31, 2021, the Nifty IT index jumped 6.61 per cent, as against a rise of 5 per cent in the Nifty 50 index. Earlier this week, Tata Consultancy Services (TCS) reported a 15 per cent on-year rise in net profit and declared a dividend of Rs 15 per share.

Key things to watch out for

Revenue, EBIT margin: Analysts at brokerage firm Nirmal Bang expect Infosys to report a double-digit revenue growth, while they believe that margins may take a bit of a hit in FY22 due to the roll-out of wage hikes and investment phase in some of the large projects. “The same shall be partly offset by strategic measures and cost optimization programs implemented by the company,” they added. They also see that much of the incremental revenue in 4QFY21 to come from the large deals won recently.

Share buyback: Infosys will consider a share buyback, which would be the third buyback by the IT firm in the last five years. IT giant completed its first buyback of Rs 13,000 crore in December 2017, comprising 11.3 crore equity shares at a price of Rs 1,150 per share. In August 2019, it had bought back 11.05 crore shares under its Rs 8,260 crore buyback offer, at an average price of Rs 747.38 per equity share. According to analysts the maximum permissible size of the buyback is 25 per cent of net worth.

Dividend: Infosys in a BSE filing said that the board of directors have recommended a final dividend for the financial year ending March 31, 2021. Earlier this TCS also announced a dividend of Rs 15 per share. In the previous three quarters, TCS has given interim dividends of Rs 5 per share, Rs 12 per share, and Rs 6 per share. The total dividend given by TCS in FY21 stands at Rs 38 per share.

FY22 guidance: Analysts expect that March quarter will be another quarter of growth for IT service companies backed by large deal ramp-ups and continued spend on digital platforms. “We expect Infosys to guide for 12-14 per cent revenue growth for FY2022E,” analysts at Kotak Institutional Equities said. The brokerage firm also added that all the companies will end up with 20-570 bps higher EBIT margin on on-year comparison.

Attrition rate, pent-up hiring: Kotak Institutional Equities expects attrition rates to move back to pre-Covid levels over the next 9-12 months. It added that pent-up hiring and constraints in digital talent supply will lead to significant wage inflation for talent in niche digital skills. “Wage revisions and attrition will be the key factors to watch for; large companies will be able to weather this storm better,” it said. Last year in October, Infosys announced to roll out salary hikes and promotions across all levels effective January 1 as the company predicted higher growth in the year ahead on the back of large deal wins from customers.

Infosys reported a 16.8 per cent on-year rise in consolidated net profit for October-December 2020 quarter at Rs 5,215 crore. The company had reported a profit of Rs 4,466 crore in the same quarter of previous year. Infosys’ gross revenue for the quarter under review rose 12.3 per cent on-year to Rs 25,927 crore. It was up 5.5 per cent on a sequential basis.