Infosys Q1 results beat estimates!

Last updated: 15 Jul, 2020 | 02:48 pm

Infosys Q1 results beat estimates!
  • Profit beats estimates: Infosys, India's second-largest software services exporters, has reported a 12.4% on-year rise in consolidated net profit to ₹4,272 crore in Q1FY21, beating analyst estimates. Analysts had earlier estimated a profit of about ₹3,950 crore.
  • Revenue growth across verticals: Infosys revenues grew 8.5% on-year to ₹23,665 crore, backed by large deal wins. In fact, the company has seen its revenue grow across all verticals except Manufacturing and Retail, which were impacted the most due to lockdown. The table below shows Infosys revenue growth across various verticals.  
  • Operational margins improve: “The EBIT margin improved during the quarter from 21.2% to 22.7%. Cost avoidance measures, favourable currency movements, and large deal wins aided the margins of Infosys in Q1FY21.”{{tweet1}} Short term and temporary cuts were done on discretionary work. Given the pandemic, travel expenses too came down.
  • Revenue guidance: While other IT firms have refrained from providing revenue and margin guidance in these uncertain times, Infosys said that it expects a 0-2% on-year rise (constant currency terms) in revenue in FY21  and sees margin between 21-23%

Q1FY21 results were expected to be weak as it was the first full quarter that captured the impact of lockdown imposed from March 24th. However, Infosys was able to beat expectations by winning new contracts and implementing cost cuts to maintain its revenue and operational profitability. Large deal wins during the quarter stood at $1.74 billion—higher than the $1.65 billion worth of deals it won in the previous three months. 

The Covid-19 pandemic has forced a tectonic shift in businesses processes to move towards greater digitization. This has helped the IT sector to bounce back faster than other industries. Infosys said that the relevance of its is resonating with its clients in these times. The growth in Q1FY21 has improved visibility for the rest of the year for Infosys. 

The stock has gained about 66% from its March lows and is currently trading at a 52-week high. The shares are trading at a PE of 21.46 as compared to IT sector PE of 22.32.

Our VGQM model has a BUY rating on the stock.

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