Country’s second largest software services exporter Infosys posted a largely inline first quarter performance with a strong deal pipeline. However, it sharply cut its FY24 revenue guidance owing to delay in project ramp-ups along with overall fall in the volume of work.
For the quarter ended June, Infosys reported around 11% rise in its consolidated net profit on year-on-year (YoY) basis to Rs 5,945 crore. Consolidated revenue during the quarter increased to Rs 37,933 crore, a rise of 10% over the same period a year ago.
In dollar terms, revenue was at $4.61 billion. This was a rise of 1% over the previous quarter on a constant currency term.
Owing to an uncertain global environment, project ramp downs, fall in discretionary spend and low volume of work, the Bengaluru-headquartered company sharply reduced its revenue growth guidance for FY24 to 1-3.5% as compared to earlier projection of 4-7%t. The company, however, retained its operating margin guidance of 20-22% for FY24.
“There are delays in the start of the mega and large deals apart from delay in decision making. Coupled with that, we have seen some of the volumes during the quarter coming down from clients (operating) in the industries like financial services, asset management, payment, mortgages, and telecom. These specific industries are reducing their volume of work. These two things combined, led to reduction in guidance,” Salil Parekh, CEO of Infosys said during the post-results press conference.
“We see much more growth-orientation towards the backend of the fiscal year as large projects are expected to ramp-up. While cost optimisation deals are coming to the market, clients are holding back discretionary spends, impacting volumes,” he added.
During the quarter, the company bagged large deals worth $2.3 billion, which was a tad higher than $2.1 billion reported in the previous quarter. The management also informed that Infosys has won another mega deal worth around $2 billion just after the close of first quarter. The company said a large number of cost optimisation and vendor-consolidation deals are coming its way. Infosys saw the number of $100-million plus clients slip during the June quarter to 38 from 40 in the previous quarter.
The company reported an operating margin of 20.8%, down 20 basis points sequentially. According to the management, the company is confident of maintaining its margin guidance of 20-22% on the back of its cost optimisation measures.
“Q1 operating margins were resilient in an uncertain macro environment on the back of our continued focus on cost optimisation. We have many levers available for maintaining our margins at the guided level that includes employee utilisation. We have devised a strong cost optimisation measure, which is headed by about 30 leaders. Our margin for the first quarter is at the mid-level of our guided range and we are confident of maintaining our margin guidance,” Nilanjan Roy, CFO of Infosys said.
Among verticals, while financial services saw a 4.7% YoY drop in revenue, communication vertical reported a 6.1% drop in sales during the quarter. Manufacturing and Lifesciences remained the best performing verticals with double-digit growth numbers.
Like its peers, Infosys saw growth bumps in the US market with North America growing at 2.3%, while Europe led the show with 11% growth on YoY basis.
During the quarter, Infosys total headcount fell by 6,940 to 3,36,294, indicating a tepid hiring trend. Its attrition trended down to 17.3% in June quarter, a reduction of 360 basis points over the previous quarter.
Infosys’ management said they didn’t have any hiring target for the rest of the fiscal year as employee addition would depend on the demand environment. “We have targets for hiring but we will see how the demand environment plays out. We have not given any target,” Parekh said.
Infosys, which has deferred salary hikes to its employees, said increments are currently under active consideration of the management.
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