News

Published: July 20, 2023
Updated: July 20, 2023

Infosys Slashes FY24 Revenue Guidance Amidst Macroeconomic Challenges

In the face of a challenging macro environment and delays in deal closures, Infosys, India's renowned software exporter, has revised its FY24 revenue growth guidance to a conservative 1-3.5% in constant currency, down from the previously projected 4-7%. The company's latest financial results reveal the impact of these challenges on its performance, prompting cautious optimism for the future. Let's delve into the key insights from Infosys' Q1 report and understand the road ahead for the company.

Q1 Net Profit Up, but Short of Estimates:

Infosys posted net profits of Rs 5,945 crore for the first quarter ending in June, registering a promising 11% YoY increase. However, the QoQ growth witnessed a decline of 3%, falling below the consensus Bloomberg estimate of Rs 6,251 crore. Revenues for the June quarter stood at Rs 37,933 crore, reflecting a 10% YoY growth, but sequential growth was only 1.3%, mainly attributed to a slowdown in deal ramp-ups.

Lowering FY24 Revenue Growth Guidance:

In light of the challenging economic landscape and delays in finalising deals, Infosys took a cautious approach and lowered its FY24 revenue growth projection to 1-3.5% in constant currency. This downward revision comes after the company had initially guided for 4-7% growth in the previous quarter.

Operating Margin Resilience in Uncertain Times:

Infosys maintained its operating margin guidance at 20-22% for FY24, a sign of resilience amidst uncertainties. The operating margin for the June quarter improved to 20.8% compared to the previous year's corresponding quarter, but slightly narrowed from the preceding three months' 21%. This was achieved through rigorous operational discipline, cost optimization, and improved productivity measures.

Sector-Specific Challenges Impacting Revenues:

The Indian IT services industry is grappling with headwinds in key industry verticals and geographies, particularly the US and Europe, facing high interest rates and inflationary pressure. This has led to delays in decision-making by clients and reduced discretionary spending. Notably, the financial services and retail verticals, which together constitute almost half of Infosys' revenues, witnessed contrasting performances, with financial services experiencing a 4.2% annual decline, while retail grew by 4% in constant currency.

Focus on Large Deals and AI Platform:

Despite the challenges, Infosys recorded a substantial uptick in large deals, which surged by 35.3% YoY, amounting to a total contract value (TCV) of $2.3 billion. The company's generative AI platform, Topaz, secured 80 projects, reinforcing its commitment to cutting- edge technologies.

Attrition Rate Moderates and Headcount Declines:

Infosys experienced a moderation in attrition, which dropped to 17.3% from 28.4% YoY, reflecting a sector-wide trend. Additionally, the company's headcount declined by 6,940 on a sequential basis, totaling 336,294 employees as of the June quarter.

Analyst Insights and Stock Performance:

Industry experts acknowledge Infosys' successful large-deal pursuit strategy but caution the company to navigate the current demand environment, maintain margins, address senior- level departures, and tackle fierce competition. The company's shares closed down 1.7% at Rs 1,448.85 on the BSE after the results announcement.

As Infosys confronts the uncertainties posed by the challenging macroeconomic landscape, its revised guidance and cautious approach signal a determined effort to adapt and excel. The company's focus on large deals, AI-driven innovation, and cost optimization may pave the way for sustained growth and resilience amidst ongoing headwinds in the IT sector. With a strong pipeline of large and mega deals, Infosys remains poised to leverage opportunities in the latter part of the financial year.