Infosys, HCL Tech, Cyient Q3 Results Review: HDFC Securities

HDFC Securities Institutional Equities

Infosys Ltd. - Steady progression

Infosys posted a slightly higher revenue growth in Q3 and increased its FY23E revenue guidance. Revenue growth at 2.4% QoQ and 13.7% YoY constant currency was ahead of consensus, supported by higher pass-through revenue which was linked to integrated deals. Infosys’ revenue guidance increased from 15-16% CC to 16.0-16.5% CC, implying ~2.5% QoQ for Q4 FY23E.

Key drivers for Infosys include the following:

1. strong large deal bookings with $3.3 billion total contract in Q3; nine months-FY23 net-new large deal bookings that were up 30% and commentary on pipeline supporting growth visibility;

2. recovery expected in North America with 25 of the 32 large deals from North America;

3. acceleration in vendor consolidation and cost take-out deals reflected in growth in core services (versus historical decline); and

4. strong traction in energy and utilities and manufacturing verticals.

HCL Technologies Ltd. - Chugging along

HCL Tech posted in-line services revenue and higher-than-estimated software revenue, driven by Q3 seasonality. IT and business services and engineering research and development services posted 2.1% QoQ and 2.5% QoQ respectively.

HCL Tech tweaked its growth guidance lower last month and stands at 13.5 to 14.0% CC growth, including 16.0 to 16.5% CC growth for services. Growth for HCL Tech in Q3 was led by the manufacturing vertical, telecom, media and entertainment vertical and life-science and healthcare vertical.

New deal wins were flat sequentially but up 10% YoY at $2.3 billion. Margin improvement was driven entirely by the software business and is expected to revert in Q4.

Cyient Ltd. - Organic growth impressive

Cyient reported a strong quarter, with core services organic growth of 3.7% QoQ CC (reported up 11.9% QoQ CC) and better-than-expected margin expansion of 100 bps. The services growth in the quarter was led by aerospace, mining energy and utilities and new growth areas like automotive and healthcare.

The company is gearing to hit double-digit growth, led by-

1. investments in new areas (electric vehicle and mobility),

2. strong growth in aerospace led by top client,

3. a healthy deal pipeline (up 1.5 times YoY) comprising ~70% of large deals,

4. strong order intake of $237 million (up 18% YoY, 15-quarter high), and

5. expected recovery in communication and rail transport verticals.

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