Infosys Q3 net profit down 2.2% at ₹6,654 crore on new Labour Codes

Raises FY26 revenue growth guidance in range of 3-3.5%

A strong deal pipeline and disciplined execution have prompted Infosys, India’s second-largest information technology (IT) services firm, to raise its revenue growth guidance for 2025-26. 

The company now expects revenue growth in the range of 3-3.5 per cent in constant currency in FY26, up from the 2-3 per cent it expected in October.

 

The firm reported a 2.2 per cent decline in net profit to about ₹6,654 crore for the third quarter (October-December) of FY26 due to the impact of the new Labour Codes. This came even as its financial services and manufacturing businesses remained strong. Revenue rose 8.9 per cent year-on-year to around ₹45,479 crore, driven largely by financial services and manufacturing. While Infosys beat revenue estimates, it missed profit expectations. Bloomberg had estimated revenue of about ₹45,172 crore and net profit of around ₹7,393 crore. The impact from the implementation of the Labour Codes during the quarter was ₹1,289 crore. 

Peers TCS and HCLTech were also impacted in a similar manner. 

On a constant currency basis, which discounts the impact of currency fluctuations, the company grew 1.7 per cent, way better than larger rival TCS, but lagging HCLTech, which posted the strongest growth of 4.8 per cent among the three. 

“We have confidence in where the market is and where the demand is, and that is why we are raising the guidance. There were a lot of deals in the previous quarters and strong execution this time,” said Salil Parekh, chief executive officer and managing director of Infosys. 

Parekh clarified that the revised guidance does not include the impact of the acquisition of Versent, an Australian technology and consulting firm in which Infosys acquired a majority stake in August. It, however, does factor in the billion-pound deal signed with the NHS Business Services Authority (NHSBSA) to modernise its workforce management solution across England and Wales. 

While Infosys is yet to disclose its AI revenue, something peers HCLTech and TCS have begun doing, the company said it was working on AI projects with 90 per cent of its top 200 clients. It has built 500 AI agents and was involved in about 4,600 AI projects. 

Parekh added that there are six areas within AI offering incremental opportunities: AI engineering services, data for AI, agents for operations, AI-led software development and legacy modernisation, AI deployed in physical devices, and AI trust and risk services. 

Infosys reported a total contract value (TCV) of $4.8 billion during the quarter, of which 57 per cent was net new. TCV was up 45 per cent sequentially from $3.3 billion in the previous quarter. 

Financial services and manufacturing grew 3.9 per cent and 6.6 per cent, respectively, in constant currency terms compared to a year earlier. Both sectors have seen a revival in the US, particularly financial services, as mergers and acquisitions reach an all-time high in the largest market. 

“There is good traction in financial services from retail banks, mid-market banks, payments and mortgages, with rapid adoption of AI and higher productivity,” Parekh said. 

Retail, however, remained a drag, declining 5.5 per cent, as US retailers continued to face pressure following the pandemic and from the shift towards online shopping. Europe grew 7.2 per cent, while North America declined 1 per cent.

 

Operating margins shrunk to 18.4 per cent from 21.3 per cent a year earlier due to the impact of the statutory Labour Codes implemented in November. Excluding this, adjusted operating margins stood at 21.2 per cent, within the company’s guidance. The impact was 15 basis points on an annual basis.

 

“Our performance was broad-based in Q3, with a 0.2 per cent adjusted operating margin expansion and robust adjusted free cash flow generation of $965 million in a seasonally weak quarter,” said Jayesh Sanghrajka, chief financial officer. 

 

Infy won’t alter work from office policies 

Infosys on Wednesday said it would not change its work from office policies even as other companies have put in more stringent measures. Infosys asked its employees, above job level 5 last year, to mandatorily comply with the order of working 10 days from office per month. 

Infosys added 5,013 people during the third quarter at a time when the metric declined for TCS and HCL. While TCS’ headcount fell by 11.151, HCL’s dipped marginally by 281. It now has 337,034 people as of December 31 and its voluntary attrition dropped to 12.3 per cent from 14.3 per cent sequentially.