Infosys, India’s second-largest IT services company, is set to announce its Q3 results, and investors are eagerly waiting to see how the new labour codes will impact its net income. The company’s performance will be closely watched, especially after its peers, Tata Consultancy Services (TCS) and HCL Technologies, reported a decline in their net income due to the implementation of the new labour codes.
The new labour codes, which came into effect from October 1, 2020, have introduced significant changes to the way companies calculate employee benefits, such as provident fund, gratuity, and leave encashment. These changes are expected to increase the employee benefit expenses for IT companies, which could negatively impact their profitability.
TCS, the largest Indian IT company, reported a 7.1% decline in its net income in Q2, citing the impact of the new labour codes. HCL Technologies also reported a 3.4% decline in its net income, attributing it to the increased employee benefit expenses. Given this trend, investors are concerned that Infosys may also report a decline in its net income.
However, analysts believe that Infosys may be better positioned to absorb the impact of the new labour codes due to its strong revenue growth and improving operating margins. The company has been consistently delivering strong revenue growth, driven by its digital transformation services, and has been improving its operating margins through cost optimization and efficiency measures.
In Q2, Infosys reported a 4% year-on-year growth in revenue and a 200 basis points expansion in operating margins. The company’s digital revenue grew 25.4% year-on-year, driven by strong demand for cloud, data, and artificial intelligence services. Analysts expect Infosys to report a revenue growth of 3-4% in Q3, driven by the continued demand for digital services.
While the new labour codes may impact Infosys’ net income, the company’s strong revenue growth and improving operating margins are expected to cushion the blow. Analysts expect the company to report a net income decline of around 2-3% in Q3, which is relatively lower than the decline reported by TCS and HCL. Overall, Infosys’ Q3 results will be closely watched, and investors will be looking for signs of how the company is navigating the challenges posed by the new labour codes.