Infosys ups annual sales forecast on strong deal momentum

India’s No.2 software-services exporter Infosys raised its annual sales forecast on Thursday after posting better-than-expected third-quarter results on the back of strong deal momentum.

The news came just days after larger rival Tata Consultancy Services missed profit estimates and warned about 2023 citing weaker spending by clients amid economic uncertainties.

Infosys forecasted revenue growth of 16 per cent to 16.5 per cent for the current financial year, up from its prior outlook of 15 per cent-16 per cent. It has been gaining market share from rivals. It won large deals worth $3.3 billion in the third quarter – its strongest in the last eight quarters and versus $2.7 billion that it bagged last quarter. It retained its margin outlook of 21-22 per cent.

“Our revenue growth was strong in the quarter, with both digital business and core services growing. As reflected in the large deals momentum, we continue to gain market share,” Infosys Chief Executive Officer and Managing Director Salil Parekh said.

Infosys, which saw attrition come down by 2.8 per cent to 24.3 per cent in the quarter, expected that number to fall further. It added 1,627 employees in the period, taking its total headcount to 3,46,845.

“Despite strong TCV (total value of deals), hiring has been lower which suggests that there could be some moderation on revenues in the medium term,” ICICI Securities wrote in a note.

Demand worries

Like TCS, Infosys flagged concerns tied to certain geographies and businesses.

Infosys highlighted slackening demand in the mortgage and investment banking arms within the banking, financial services and insurance (BFSI) segment in the United States. It also underlined slower client spending in the telecom, retail and hi-tech businesses.

“We are seeing different demand environments for different industries. Mortgage, investment banking, telcos, high-tech, retail segments are witnessing some growth constraints, while we are seeing strong growth in energy and utilities, manufacturing, and other verticals,” Parekh said.

Infosys also talked about seeing pockets of weakness in Europe.

“There are more concerns in Europe than the US. We will see how this plays out. But there are differences within the European economy with good traction in some industries,” Parekh said.

Net profit rose 13.4 per cent to Rs 6,586 crore in the seasonally weak third quarter. Analysts on average had expected a profit of 6,500 crore rupees, according to Refinitiv IBES data.

Revenue rose 20.2 per cent to Rs 38,318 crore. While the company’s operating margin gained from the rupee’s fall and its efforts to cut costs, that number stayed at 21.5 per cent due to furloughs.

“As utilisation goes up with freshers joining projects, we can bring down subcontractor costs. Also, we will try to pass on some costs. Pricing discounts have come down substantially over the years. So, we have many levers of improving margin,” Infosys CFO Nilanjan Roy said.

The company also named Govind Vaidiram Iyer, who retired as a partner at global

leadership advisory firm Egon Zehnder, as an independent director, a regulatory filing showed.