 "Infosys Limited Corporate Head Office")
A challenging macro environment and delay in deal closures made IT major Infosys drastically lower its FY24 revenue growth guidance to 1-3.5 per cent in constant currency from 4-7 per cent it had guided in the previous quarter.
The IT major, however, maintained its operating margin guidance at 20-22 per cent for FY24. Infosys, India’s second-largest software exporter by revenue, posted net profits of Rs 5,945 crore for the first quarter ended June, up nearly 11 per cent from a year ago but down 3 per cent QoQ (quarter-on-quarter), below the consensus Bloomberg estimate of Rs 6,251 crore.
Revenues for the June quarter grew 10 per cent from the year-ago period to Rs 37,933 crore, in line with the consensus Bloomberg estimate of Rs 37,843 crore.
On a sequential basis, revenues grew only 1.3 per cent due to slowdown in deal ramp-ups. In comparison, Tata Consultancy Services reported revenues of Rs 59,381 crore for the first quarter, up 12.6 per cent year-on-year, but just 0.3 per cent from the preceding quarter.
Infosys’ dollar revenues grew 4.2 per cent annually and 1.0 per cent sequentially in constant currency to $4.6 billion on the back of large deals worth a total contract value (TCV) of $2.3 billion.
The uptick in large deals was strong, which was up 35.3 per cent compared to $1.7 billion in Q1FY23. TCV was up 9.5 per cent from Q4FY24, in which it was $2.1 billion. Despite the strong deal wins and addition of two mega deals in the quarter the company sounded cautious.
The management sees volatility in the near-term but revenues from some of the large deals coming in the second half of the year.
“In the short term, we see some clients stopping or slowing transformation programmes and discretionary work. This is especially so in financial services, mortgages, asset management, investment banking and payments, and telecom. We also see some impact in the hi-tech industry and in parts of retail. We have a strong pipeline of large and mega deals. We see revenues from some of these and other large deals towards the later part of a financial year,” said Salil Parekh, chief executive officer and managing director.
The company said the firm’s generative AI platform Topaz, got 80 projects.
The Indian IT services industry is facing challenges due to headwinds in key industry verticals and in key geographies like the US and Europe with persistently high interest rates and inflationary pressure. This is causing delays in the decision-making cycle of clients and a cut in discretionary expenditure.
The operating margin for the June quarter increased to 20.8 per cent from 20 per cent in the corresponding quarter of the previous year but narrowed from 21 per cent in the preceding three months.
Nilanjan Roy, chief financial officer, said: “The Q1 operating margins were resilient in an uncertain macro environment on the back of our continued focus on cost optimisation. The company’s rigorous operational discipline including improved productivity measures and higher utilisation helped margins for the quarter.”
Financial services and retail are the largest verticals, together accounting for close to half the revenues of Infosys.
Revenues from financial services declined 4.2 per cent annually in constant currency and contributed 28.1 per cent to those for the June quarter. Revenues from retail grew 4 per cent in constant currency, contributing 14.5 per cent to the total.
The attrition rate moderated to 17.3 per cent from 28.4 per cent in the year-ago period and 20.9 per cent in the preceding three months, indicating a downward trend which has been observed across the sector.
The headcount declined by 6,940 on a sequential basis, totalling 336,294 employees as of the June quarter. The company did not give its hiring targets for the financial year.
“Infosys has been a strong performer over the past few years, driven by a successful large-deal pursuit strategy. However, the company needs to watch out for the current demand environment, the trade-offs to sustain margins, senior-level departures, and strong competition … Infosys needs to also watch out for adopting automation in certain areas of its business,” said D D Mishra, senior director analyst, Gartner.
Infosys declared its results on Thursday after market hours. Its shares closed down 1.7 per cent at Rs 1,448.85 on the BSE.
