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Infosys projects 13-15% revenue growth on strong cloud demand

But Indian IT giant misses analyst estimates for January-March revenue, profit

Infosys is enjoying robust demand for its digital services, especially cloud offerings.   © Reuters

BENGALURU -- Infosys anticipates revenue growth of 13-15% for the financial year ending March 2023, India's second-largest information technology company said Wednesday, driven by strong demand for its digital services, particularly cloud offerings.

Revenue for the January-March quarter rose 22.7% on the year to 322.76 billion rupees ($4.25 billion), outpacing larger rival Tata Consultancy Services' 15.75% growth in revenue to 505.91 billion rupees announced Monday.

Infosys lifted net profit 12% to 56.86 billion rupees in that quarter, though the operating margin fell to 21.5% from 23.5% in the October-December period. Digital services -- which include cloud services, analytics, internet-connected devices and cybersecurity -- accounted for 59.2% of revenue.

But overall revenue for Infosys inched up 1.28% over the previous quarter, compared with a 3.48% gain for TCS.

Chief Financial Officer Nilanjan Roy attributed the smaller operating margin and muted quarter-on-quarter revenue growth to "seasonality of Q4, because working days are lower than the previous quarter."

"There were headwinds from the revenue side where we have taken a commercial contractual position for a client, which we expect to recover in the times ahead," he said, adding that Infosys projects an operating margin of 21-23% for the current financial year.

Revenue and net profit at the Bengaluru-based company also fell short of forecasts. A Bloomberg poll of analysts predicted 59.61 billion rupees in net profit on revenue of 327.09 billion rupees.

"We see the demand to be robust today," said CEO Salil Parekh, alluding to the $2.3 billion worth of "large deals" -- those worth more than $100 million -- that Infosys won during the quarter. The company's large deals for the financial year ending March 2022 totaled $9.5 billion.

"There is a lot of talk going on about the macro-environment, but in our pipeline and the work that we are doing in digital and cloud, we see a clear demand with our client base," Parekh said, adding that the company will evaluate "the forces that will play out as the year progresses."

Apurva Prasad, vice president of institutional research at HDFC Securities, said Infosys will maintain growth momentum thanks to its high share of revenue from digital technologies, "which are in high demand."

For the full fiscal year ended March 2022, Infosys posted 21.1% revenue growth to 1.21 trillion rupees, while net profit rose 14.3% to 221.1 billion rupees. Rival TCS had posted a revenue gain of 16.8% to 1.95 trillion rupees, while net profit surged 18% to 384.49 trillion rupees.

ICICI Securities analysts said Infosys ended fiscal 2022 "within our guided range, and the revenue growth guidance for FY23 reflects another strong year." Demand remains strong on the back of healthy deal wins, the analysts said.

But they noted the margin guidance on earnings before interest and tax is lower by 100 basis points on both the higher and lower end of the fiscal 2022 band, saying this "reflects the continued cost pressures due to demand supply mismatch."

India's top IT services companies benefited from clients worldwide spending more on technology to digitize operations with the onset of the coronavirus pandemic in March 2020. The likes of TCS, Infosys and HCL Technologies spruced up their so-called digital services businesses to take advantage of this trend.

Analysts are divided on the fate of Indian IT firms amid volatility in the market triggered by Russia's invasion of Ukraine, which has sent crude oil prices soaring, exacerbating inflation. There are concerns that companies could cut costs and reduce IT budgets to battle inflation.

While analysts at Gartner estimate IT spending globally to top $4.4 trillion, a 4% increase over 2021, Indian brokerages think otherwise. Analysts at ICICI Securities and Anand Rathi said in separate notes on Monday that they expect IT companies to face the heat from skimpy client budgets.

IT firms also are troubled by soaring attrition triggered by a surge in demand for technology workers. This has prompted such companies to roll out higher wage hikes than usual, further impacting their margins.

Attrition at Infosys stood at 27.7% for fiscal 2022, versus 17.4% at TCS. Parekh said while Infosys clients across industries face inflation, "they appreciate and understand that we also have wage increases and other aspects to our business," adding that the company has initiated discussions over potential price increases.

Infosys also said that the company will exit Russia as Moscow escalates its war on Ukraine, joining technology majors such as Oracle and SAP. Parekh said that the firm neither works with Russian clients nor intends to get one.

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