Infosys dips 2% on termination of $1.5 bn multi-year deal with global firm

Shares of Infosys dipped 2.5 per cent to Rs 1,522.50 on the BSE in Tuesday’s intra-day trade after the information technology (IT) services firm on Saturday said that a global company has decided to terminate a multi-year contract worth $1.5 billion with it. The reason for the cancellation of the deal has not been mentioned in the exchange filing.

On September 14, 2023, Infosys had announced signing of a $1.5 billion deal with a global company (which they had not named) to provide enhanced digital experience along with modernization and business operations services, leveraging Infosys platforms and AI (Artificial Intelligence) solutions. The deal was for a 15-year duration.

In a filing to the exchanges, Infosys said, “The global company has now elected to terminate the Memorandum of Understanding (MoU) and the parties will not be pursuing the Master Agreement.”

Nonetheless, it was merely a MoU and amount was not included in the order book.

Meanwhile, while announcing September quarter earnings in October, Infosys trimmed its FY24E revenue growth outlook to 1.0 per cent-2.5 per cent in constant currency (CC) terms (previously: 1.0 per cent-3.5 per cent) due to the ongoing underlying softness in volume and slowdown in discretionary spending; retained its operating margin guidance of 20.0 per cent-22.0 per cent.

The company still faces growth hurdles in the Communications sector and expects the EURS clients to continue to be conservative with their discretionary spending. The manufacturing sector grew in double-digits in Q2FY24; the company sees opportunities in infra transformation and cost consolidation, which is driving a stronger pipeline, according to analysts KRChoksey Shares and Securities.

According to management, the financial services industry is still experiencing a slowdown in sectors such as mortgages, asset management, investment banking, cards, and payments. The adverse impact of reduced spending by some large clients in Q2FY24 was partially offset by a few large deal wins in cost optimization and vendor consolidation. However, given the shift to the cloud and the growing demand for real-time insights and analytics, management is cautiously optimistic about the medium-term prospects, the brokerage firm had said.