Q1 results: Infosys tops profit estimates, lifts FY25 revenue forecast

Sees 7.1% rise in Q1 earnings, 100 bps improvement in margin to 21.1%

Infosys, India’s second-largest software exporter by revenue, surprised the Street by raising its revenue guidance for 2024-25 (FY25) upwards — to 3 per cent-4 per cent in constant currency terms.

The Street was expecting the company to maintain its revenue guidance at 1 per cent-3 per cent.
 

This signals better information-technology expenditure by clients.
 

The company reported a 7.1 per cent year-on-year (Y-o-Y) increase in its net profit at Rs 6,368 crore for the first quarter of FY25, above the consensus Bloomberg estimates of around Rs 6,248 crore. Sequentially, net profit was down 20.4 per cent.
 

Revenue for the quarter grew by 3.6 per cent Y-o-Y to approximately Rs 39,315 crore, above the consensus Bloomberg estimate of around Rs 38,810 crore. 
 

Sequentially, revenue was up 3.7 per cent.

ALSO READ: Infosys to hit campuses; total hiring target at 15,000-20,000 for FY25
 

The company has guided its operating margin of 20-22 per cent for FY25. The share price of Infosys, which announced its results after market hours, was almost 2 per cent up at Rs 1,759.15.
 

The firm’s ADR (American depositary receipt) increased  8.26 per cent  in early trade (9.51 pm IST).

On revising the guidance upwards, Salil Parekh, managing director and chief executive officer, said: “There are three reasons that support our guidance. First is a strong Q1, which was because of strong volumes, and good financial services outcome in the US. And then there was a strong large deal and acquisition (of intech), which was closed in time.”

Margins for the quarter came in at 21.1 per cent, an improvement of 100 basis points.

“Our relentless drive on cost optimisation through Project Maximus, a comprehensive margin expansion programme, is reflected in the all-round improvement in key operating metrics leading to 1.0 per cent growth in operating margin in Q1,” said Jayesh Sanghrajka, chief financial officer.

Infosys signed a large-deal total contract value (TCV) worth $4.1 billion. On a Y-o-Y basis, TCV was up 78.2 per cent from $2.3 billion in Q1FY24. On a sequential basis TCV was down 8.8 per cent.

In Q4FY24 the company had signed a large deal with a TCV worth $4.5 billion.

Infosys, like its peers Tata Consultancy Services and HCLTech, said while it saw early signs of improvement in the financial services vertical in the US, discretionary spend continued to be under pressure.

“…differentiated offerings around driving efficiencies at scale and the transformation capabilities around generative AI (artificial intelligence) have positioned us well in the market,” said Parekh.

“Infosys reported robust 3.6 per cent quarter-on-quarter revenue growth in constant currency, surpassing estimates … Notably, the company is experiencing early signs of improvement in financial services in the US, which augurs well for the stock. The strong Q1 numbers and upward guidance revision are likely to lead to an upward revision in earnings estimates. We have a ‘buy’ rating on the stock,” said Shaji Nair, research analyst, Sharekhan by BNP Paribas.

On generative AI, the company did not reveal or quantify the revenue.

“We are making a huge impact … our Chairman Nandan (Nilekani) said at the annual general meeting the work we are doing is massive. We are not at this stage disclosing and quantifying externally our revenue from it,” added Parekh.

He said enterprises were using GenAI in areas such as customer services, software development, and process optimisation.

In terms of growth drivers for this quarter, Parekh referred to strong growth in BFSI (banking, financial services, and insurance), which grew 79 per cent sequentially. On a Y-o-Y basis BFSI had a flat growth rate of 0.3 per cent on a constant currency basis.

Growth was driven by manufacturing (6.4 per cent Y-o-Y), communication (5.2 per cent Y-o-Y) and energy, utilities, resources and services (5.2 per cent Y-o-Y).

Among geographies the US continued to be subdued. It was down 1.2 per cent Y-o-Y. Europe grew 8.6 per cent Y-o-Y and India jumped 18.4 per cent.

Though the first quarter was the sixth consecutive one when the firm saw its headcount decline, Infosys said it would hire 15,000-20,000 freshers this financial year. For Q1FY25, the headcount was down 1,908. The attrition rate moderated to 12.7 per cent from 12.6 per cent in the previous quarter, indicating a downward trend observed in the sector.