Infosys Growth Outlook to remain Strong

Infosys strong growth outlook

Market Outlook

Infosys observed a strong demand environment for IT services in the market. Infosys’s revenue grew faster than its peers in FY21 by 5% and FY22E to 19.5-20% due to its focus on digital offerings, re-training its employees in new skills, and focusing on large deals and cloud offerings (Cobalt platform). Infosys’ participation in IT spending beyond the CIO’s office is helping it win a greater share of the total technology spending of its clients. Small and mid-sized deals of $20-100mn are helping to offset the lack of mega-deals for Infosys in the recent past. The Growth appears for the longer term.

With the marginal improvement and not giving up on margins, Infosys attained strong growth in the last 2 years. For FY22 management is comfortable with its guided band of 22-24% (9MFY22: ~23.6%).

Key challenges and Factors for Growth: 

Looking forward to FY23, key challenges include High attrition driven by strong demand for talent leading to inflationary pressures in offshore salary costs. 
Higher-than-usual inflation in developed markets will tend to higher-than-usual salary hikes for onsite labor.
Opening up of economies could also lead to the resumption of business travel and some increase in onshore efforts in coming quarters. 
Continued focus on the higher number of fresh campus graduates to drop utilization to a more comfortable level. 

The key factor for growth is the operating leverage from strong revenue growth and selective price increases are likely to play out in FY23. 

Q4FY22 Outlook:

Infosys had 7% QoQ constant currency revenue growth in 3QFY22 aided by the large deal with Daimler. Growth is likely to be stable from that high base, with the base effect and a lack of any further mega-deals ramping up in 4QFY22. Higher than-usual visa costs are likely to be an additional challenge in 4QFY22 over and above continued fresher hiring and high attrition.

Infosys’ capital allocation policy mandates it to return 85% of free cash flow to shareholders in blocks of five years. In the last three years, the company has returned ~82% to shareholders. 

Infosys is expected to post 15-21% revenue growth with a stable EBIT margin over FY22-24F.
 

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About the Author

Shreya Anaokar is a Content Writer at 5paisa. She has completed her Master’s in Finance and Graduation in Statistics from the University of Mumbai. 

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