 "Salil Parekh CEO & MD, Infosys")
Infosys, India’s second-largest software exporter by revenue, has lowered its FY24 revenue growth guidance to 1.0-2.5 per cent in constant currency terms from 1-3.5 per cent it had guided earlier as delayed decision-making and lower discretionary expenditure by clients continue to pose challenges.
The Bengaluru-based IT major, which announced its second-quarter (Q2) results on Thursday, maintained its operating margin guidance at 20-22 per cent for FY24.
This comes a day after Tata Consultancy Services (TCS) missed the Bloomberg estimates on both revenues and net profit, and indicated soft FY24 growth.
The revenue guidance cut and the uncertain macro environment impacted Infosys’ American Depositary Receipt (ADR) shares, which fell 7 per cent to $16.25. In a seasonally strong second quarter, Infosys’s net profit was Rs 6,212 crore, up 3.2 per cent from a year ago and 4.5 per cent quarter-on-quarter (Q-o-Q), which are a marginal miss to the consensus Bloomberg estimates of Rs 6,267 crore.
Revenues for Q2 grew 6.7 per cent over the year-ago period to Rs 38,994 crore, which is above the consensus Bloomberg estimates of Rs 38,504 crore. On a sequential basis, revenues grew 2.8 per cent.
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In comparison, larger peer TCS reported revenues of Rs 59,692 crore for Q2, up 7.9 per cent year-on-year and 0.5 per cent Q-o-Q, missing the Bloomberg estimates.
Infosys’ dollar revenues grew 2.5 per cent annually and 2.3 per cent sequentially in constant currency to $4.7 billion on the back of large deals worth a total contract value (TCV) of $7.7 billion.
“We had a strong quarter in Q2. We see that with our large deal wins in the past two quarters we are winning market share in the area of cost and efficiency. These large and mega deal wins help us build a strong foundation for our future. We continue to see the overall environment with digital transformation programmes and discretionary deals being low,” said Salil Parekh, chief executive officer and managing director, during the media briefing.
Parekh said discretionary and large transformative programmes had reduced significantly and decision making was still slow.
While Infosys performed better than TCS on the numbers, the reduction in its revenue guidance for the year shows the headwinds the industry is facing.
The situation is similar at HCLTech, which reported its highest ever TCV wins at $3.9 billion. HCLTech too slashed its full-year revenue guidance because Q1 FY24 came in soft.
Sumit Pokharna, research analyst, vice-president, Kotak Securities, in a note said: “The company has posted good net profit numbers …. (however) weak volumes have been fed into the guidance … (the) guidance cut once again at the upper end of the band implies flat to 1.9 per cent decline in revenues in the next two quarters.”
Parekh, however, said the company’s Topaz offer was seeing traction.
“AI is part of almost every one of these deals and Generative AI specifically is starting to show up in a large way.”
The Indian IT services industry is facing challenges due to macro headwinds in key industry verticals across the US and Europe.
The operating margins for the September quarter narrowed 30 basis points to 21.2 per cent from 21.5 per cent in the corresponding quarter of the previous year but expanded 40 basis points from 20.8 per cent in the preceding three months. In comparison, TCS’s operating margins for Q2 stood at 24.3 per cent.
Nilanjan Roy, chief financial officer, said the Q2 operating margins demonstrated the early benefits of the company’s margin improvement plan and was a reflection of Infosys’ ability to continuously identify opportunities for improving operational efficiencies.
Financial services and retail are the firm’s largest verticals, which together account for nearly 43 per cent of its revenues. Revenues from financial services declined 7.3 per cent annually in constant currency and contributed 27.5 per cent to the revenues for the September quarter. Revenues from retail grew 9.2 per cent in constant currency, contributing 15.2 per cent to the total.
“Infosys has been a strong performer over the past few years, driven by a very successful large-deal pursuit strategy. It creates value through its focus on business outcomes,” said Biswajit Maity, senior principal analyst, Gartner.
Infosys declared its results after market hours. Ahead of the results, its shares were down nearly 2 per cent to close at Rs 1,464.55 on the BSE.
