Sell-off in Infosys shares wipes out Rs 48,000 crore in MCap after analysts lower margin estimates


The stock fell as much as 9%, its biggest fall since 23 March 2020 and touched a low of Rs 1592 a share. At 9.30am, the scrip was trading at Rs 1642 on BSE, down 7% from its previous close.

Representative image.

Representative image.

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Shares of Infosys Ltd plunged over 9 percent on Monday, wiping out Rs 48,000 crore in market capital, after several analysts cut its margin estimates over its weaker-than-expected earnings for the March quarter.

At 9  percent, Infosys had its biggest fall in the market since March 23, 2020. The stock touched a low of Rs 1,592 a share on Monday. At 9.30am, the scrip was trading at Rs 1,642 on the BSE, down 7 percent from its previous close.

Jefferies India cut its margin estimates by 100-170 basis points to factor the miss and expected 21.9 percent margin in FY22.  The brokerage firm Nomura Research expects FY23F EBIT margin to drop 100bp year on-year to 22 percent and lower FY22-24 earnings per share by 5-7 percent primarily on our lower margin expectations.

B&K Securities assume margins of 22.7/23.7 percent for FY23/24 and hence downgraded its EPS estimates by 5 percent each year to Rs. 63/78 per share respectively.

Infosys reported a revenue growth of 1.2 percent on-quarter in constant currency terms due to contractual client provisions impact and less number of calendar working days.

Infosys margin was down by 193 basis points QoQ at 21.6 percent largely due to lower working days (160bps), contractual client provision (60bps) partially negated by pyramid optimisation.

The lower margin was due to higher than expected pass-through costs (90bps margin hit), higher employee costs (30bps margin hit), rise in travel costs (30bps margin hit). The company’s management highlighted that while quarterly annualised attrition is down 5 percentage points in the fourth quarter, wage hikes in FY23 may be competitive and higher than last year particularly overseas.

“Infosys posted weak earnings with slow growth and a meaningful dip in margin. Though growth in the quarter was muted, demand remains intact and the order book remains strong. The management’s FY23 growth guidance and high headcount addition provide further visibility on demand,” said Motilal Oswal Securities in a note to investors.

“We expect Infosys to deliver margin on the higher side of its guidance band, with strong growth and reduced dependence on sub-contractors as attrition falls.  We expect Infosys to be a key beneficiary of an acceleration in IT spends,” Motilal Oswal Report added.

Infosys shared an encouraging growth guidance of 13-15 percent for FY23 on the back of a robust demand environment and strong deal pipeline. EBIT Margin guidance is a bit disappointing at 21-23 percent for FY23 (down 100bps from FY22) due to multiple headwinds visible in discretionary cost and supply side costs.

The firm added 22,000 net employees in the fourth quarter amid record attrition of 27.7 percent. Utilisation remained high at 87.5 percent. The company said it will be rolling out another round of salary hikes (onsite and offshore), promotions and bonuses.

The firm signed a total contract value of $ 2.3 billion (down 8.9 percent QoQ with seven large deals) taking trailing twelve month TCV to $ 9.5 billion (down 32 percent YoY, as third quarter of FY21 was $ 7.1 billion in TCV signings).

“The margin is likely to be a bigger concern for the sector in FY23F, given the higher-than-usual salary increments and normalization of discretionary spends like travel and visa costs . We note headwinds of high fresher hiring (the company targets >50,000 in FY23 vs 85,000 in FY22), competitive salary increments , efforts to further drop utilization towards its comfort zone of 85% (from 87% in 4Q FY22) and return of travel spends will be front loaded for Infosys in FY23F. While price hike discussions have started with customers, we think it will take time for margins to reflect any impact of price hikes”, Nomura Research report said in a note to its investors.

Brokerage firm ICICI Securities expect, going forward, the headwinds on margins are: increase in travel, facility, communication expenses; higher onsite/offsite wage revision; and declining employee utilisation rates.

“We believe there will be at least 5-7 percent of EPS cut in consensus estimates led by lowering revenue growth / margin forecasts. We do believe Infy is well positioned to gain market share and is suitably equipped for industry-leading growth. However, elevated margin pressures along with slowing revenue / TCV momentum in tandem with the macro environment lead us to retain our REDUCE rating,” ICICI Securities report added.

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