Infosys tightens FY24 guidance to 1.5-2%, Q3 net profit down 7.3%

The headwinds across the IT sector have led India’s second-largest software exporter by revenue, Infosys, to tighten its FY24 revenue growth guidance to 1.5 to 2 per cent in constant currency from 1-3.5 per cent in the previous quarter. The Bengaluru-based IT major, however, maintained its operating margin guidance at 20-22 per cent for FY24.

Infosys posted a net profit of Rs 6,106 crore for the third quarter ended December, down 7.3 per cent from a year ago and down 1.7 per cent Q-o-Q (quarter-on-quarter), slightly below consensus Bloomberg estimates of Rs 6,167 crore. The revenue for the December quarter grew 1.3 per cent from the year-ago period to Rs 38,821 crore, above consensus Bloomberg estimates that pegged the revenue at Rs 38,670 crore. On a sequential basis, revenue grew only 0.4 per cent due to a slowdown in deal ramp-ups.

Q3 is a seasonally weak quarter for IT companies on account of higher furloughs resulting in lower billable hours. Infosys’ dollar revenue declined 1 per cent Y-o-Y and Q-o-Q in constant currency to $4.7 billion on the back of large deals worth a total contract value of $3.2 billion, 71 per cent of which were net new.
 

Responding to a question from Business Standard on deals not converting into revenues, Salil Parekh, CEO and MD, Infosys said, “Large deals represent the level of connection we have with our clients…The revenue reflects what deals contribute and what programmes clients are doing. Digital programmes have been reduced as seen in the last few quarters with clients.” The Indian IT services industry has been facing challenges over the past few quarters due to macro headwinds across key industry verticals and in key geographies like the US and Europe. This has been causing delays in client decision-making and consequently deal ramp-ups. Operating margins for the December quarter narrowed to 20.5 per cent from 21.5 per cent in the corresponding quarter of the previous year and 21.2 per cent in the preceding three months.

Financial services and retail are the largest verticals which together account for close to half the revenues for Infosys. Revenues from financial services declined 5.9 per cent annually in constant currency and contributed 27.8 per cent to the total revenue for the December quarter. Revenues from retail grew 0.4 per cent in constant currency, contributing 14.6 per cent to the total revenues as of the December quarter.

The attrition rate moderated to 12.9 per cent from 24.3 per cent in the year-ago period and 14.6 per cent in the preceding three months, indicating a downward trend, observed across the sector. The headcount declined by 6,101 on a sequential basis totalling 322,663 employees as of the December quarter.

Infosys also signed a definitive agreement to acquire Bengaluru-based InSemi, a leading semiconductor design and embedded services provider, for Rs 280 crore to strengthen its engineering R&D capabilities.

“Despite a revenue drop (Q-o-Q), Infosys's future looks promising because of its strong customer focus and business pipeline. Its strategy for securing large contracts has brought in more deals lately…As CIOs continue to focus on multi-year digital transformation investments, we expect to see about a 10 per cent increase in IT services and end-user spending,” said Biswajit Maity, senior principal analyst, Gartner.

Infosys declared its results on Thursday after market hours. Ahead of the results, shares of Infosys closed down 1.6 per cent at Rs 1,495 on the BSE.   
 

(With inputs from Aneeka Chatterjee)