Infosys stock tanks 7% after Q4 results; but why...

Shares of India's second-largest software services provider Infosys plunged 7% in the opening trade on Monday after the company posted lower-than-expected quarterly earnings last week.

The stock fell 7.5% on BSE to ₹1,617 at 11:10 am after analysts cut the IT firm's margin estimates.

Jefferies cut its margin estimates for Infosys by 100-170 basis points. The brokerage expects 21.9% margin in FY22 - slightly below mid-point of guidance range.

Nomura too expects FY23 EBIT margin to drop 100 basis points year-on-year to 22%.

The IT services major's operating margin contracted to 21.5% in the fourth quarter from 23.5% in the preceding three months.

In its guidance for FY23, the company has said it expects revenue growth of 13%-15% in constant currency and an EBIT margin of 21%-23%.

Infosys' consolidated net profit rose 12% year-on-year to ₹5,686 crore in the January-March quarter of the financial year 2021-22 while its revenue grew 22.7% to ₹32,276 crore in Q4 FY22 compared with ₹26,311 crore during the corresponding quarter last year.

Attrition for Infosys touched a steep 27.7% in Q4FY22 compared to 25.5% in Q3 and 10.9% in the year-ago quarter.

Infosys won 25 large deals during the January-March quarter. TCV of large deal wins stood at $2.3 billion for the quarter while for FY22, TCV totalled $9.5 billion.

In a post earnings media briefing, Nilanjan Roy, chief financial officer of Infosys, said FY22 was marked by intense supply side challenges, but still Infosys was able to deliver strong financial performance. "EPS growth of 15.2%, free cash flows surpassing $3 billion and return on equity of 29.1%, reflecting the company’s success, driven by client-centricity and rich capabilities," he said.

For the full financial year 2021-22, Infosys' revenue grew 21.1% YoY to ₹1,21,641 crore, while its net profit rose 14.3% to ₹22,110 crore.

Digital now contributes nearly 60% to its total revenues. "We see the demand environment to be robust today. In our pipeline and the work that we are doing in digital and cloud, we see a clear demand with our client base," Infosys chief executive officer and managing director Salil Parekh said.

The company also recommended a final dividend of ₹16 per equity share for FY22 (per value of ₹5 each). The record date for its annual general meeting (AGM) and the payment of the final dividend is June 1, 2022.