Infosys cuts FY24 forecast, misses Q1 profit estimates

Analysts surveyed by Bloomberg estimated a June quarter profit of 6,245 crore on revenue of 37,843 crore

Shouvik Das
Updated21 Jul 2023, 12:52 AM IST
Salil Parekh, CEO, Infosys.
Salil Parekh, CEO, Infosys.(PTI)

Infosys Ltd on Thursday reported its weakest June quarter revenue growth since FY21 and slashed its annual sales forecast for the current fiscal year.

The Bengaluru-based tech bellwether said that in constant currency terms, which does not account for currency fluctuations, revenue rose 1% from the preceding quarter and 4.2% from the year earlier to touch 37,933 crore. Net profit rose 10.9% from a year earlier to 5,945 crore, while operating margin came in at 20.8%, in line with its guidance of 20-22% for the fiscal.

Analysts surveyed by Bloomberg estimated a June quarter profit of 6,245 crore on revenue of 37,843 crore. An investor note from 29 June by broking firm ICICI Securities had projected revenue growth of 0.8% during the period.

Infosys has also revised its FY24 revenue growth guidance to 1-3.5%, down from 4-7% given at its FY23 earnings conference on 13 April, Salil Parekh, the chief executive of Infosys, said at a conference after the earnings announcement. “Even as we won two mega deals recently, we maintain a pipeline of strong large and mega deals. We see revenue from several of these towards the later part of FY24. Keeping that in mind, we’re changing guidance this fiscal year to 1-3.5% in constant currency. We have launched a broad, comprehensive margin expansion programme, which will work across five areas—pyramid efficiency, automation, improvement in critical portfolios, reducing indirect cost, and communicating and deriving value across our portfolio. We have an ambition to improve our operating margin in the future period.”

Nilanjan Roy, the chief financial officer of Infosys, added that operating margin during the quarter was “resilient in an uncertain macro environment”. He attributed this to a “continued focus on cost optimization (and) rigorous operational discipline, including improved productivity measures and higher utilization helping margins for the quarter.”

While revenue growth was in line with expectations, the lowered guidance alarmed analysts.

Omkar Tanksale, senior research analyst at broking company Axis Securities, said the revision could imply “a difficult year ahead” for Infosys. “The company did disclose total large deals worth $2.3 billion, which is good and offers a chance for execution, but this still does not augur well for the company right now. They can still ramp up deal execution for the next couple of quarters; the third quarter might be a big one if Infosys can execute these signed deals well.”

Tanksale added that some of the weaknesses reported by Infosys during the quarter were “company-specific risks”. “The common near-term headwinds remain the same for the entire industry, but the kind of sluggishness that Infosys spoke about today was definitely unexpected,” he said.

Sanjeev Hota, the head of research at broking firm Sharekhan, said the delay in deal signings and softness in the discretionary portfolio were the key factors behind the negative revenue guidance revision. Sharekhan gave Infosys a “negative read-through” rating for its stock performance, projecting it to “lag industry-level growth to peers such as Tata Consultancy Services (TCS) Ltd and HCL Technologies Ltd”.

Tanksale and Hota’s projections were in line with the comments by Parekh, who said, “In the short term, we see some clients stopping or slowing down transformation programmes and discretionary work. This is especially so in financial services, mortgages, asset management, investment banking, and payments, as well as telecom. We also see some impact in hi-tech and in parts of retail.”

Analysts had expected revenue guidance revision to come in the range of 5-6%.

In terms of business segments, two of the top three industries that fetch over 54% of Infosys’s revenue saw annual declines. Revenue from financial services fell 4.2% from a year earlier in constant currency terms, while that from communication fell 5.6%. Manufacturing and life sciences were the only two sectors with double-digit revenue growth during the quarter.

In terms of clients, the number of $100 million-plus clients in Infosys’s portfolio fell by two this quarter to 38. The employee count fell by nearly 7,000 even as attrition dropped by 3.6 percentage points to 17.3%. Bench utilization, including trainees, rose 2.3 percentage points to 78.9%. Employee benefit expenses rose 2.3% sequentially and 13.3% on-year to 20,781 crore.

Infosys also disclosed $2.3 billion of large deals signed during the quarter, with Parekh affirming 56% of the large deals’ total contract value (TCV) came from new deals signed during the quarter, including one “mega” deal win.

Parekh said Infosys already has 80 active generative artificial intelligence (AI) projects and has trained 40,000 employees in the field.

“We’re delighted that Topaz, our generative AI platform, is resonating well with our clients. We are working on 80 generative AI projects for our clients at this time. The work we’re doing covers large language models (LLMs), text, documents, voice, and video. Internally, we’ve developed generative AI tools based on open-source models of generative AI platforms that are focused on software development. We’ve trained 40,000 employees in this area, and we see generative AI to be transformational for all of our clients,” he added.

Shares of Infosys closed at 1,448.85 on Thursday, down 1.73%, before the earnings were announced. The 30-share BSE IT index closed at 31,483.86 points, down 0.81%.

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First Published:21 Jul 2023, 12:52 AM IST
HomeCompaniesCompany ResultsInfosys cuts FY24 forecast, misses Q1 profit estimates

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