Bengaluru-headquartered IT services giant Infosys beat market expectations with sequential revenue growth of 3.6 per cent quarter on quarter (QoQ) in constant currency (CC) during the first quarter of the fiscal year 2024-2025. The company has significantly improved its guidance and expects a revenue growth of 3-4 per cent in constant currency in FY25, up from the 1-3 per cent it had guided earlier.
In Q1FY25, revenue stood at ₹39,315 crore, an increase from Q4FY24’s revenue of ₹37,923 crore. In the same quarter last fiscal, the company’s revenue was ₹37,933 crore, a growth of 2.5 per cent YoY in CC terms.
One-time interest
The net profit for the quarter stood at ₹6,368 crore, a decline of 20.1 per cent from Q4’s ₹7,969 crore. The decline in net profit was due to a one-time interest on an income tax refund included in ‘Other income’ in the fourth quarter of the previous financial year, amounting to ₹1,916 crore. However, profit after tax (PAT) rose by 7.1 per cent from ₹5,945 crore in Q1 of the last fiscal.
“Strong deal pipeline, improvement in key markets, and recent acquisition are building the confidence for us to up the guidance. Our performance in Q1 was strong on volumes, and financial services in the US are seeing early signs of improvement. Strong performance on the large deals front in the first quarter gives more visibility into this financial year; the in-tech acquisition also helps us in this guidance,” said Salil Parekh, CEO and MD of Infosys. “With our focused approach for generative AI for enterprises working with their data sets on a cloud foundation, we have strong traction with our clients. This is building on our Topaz and Cobalt capabilities.”
The company claimed that the number of large deal wins this quarter was its highest ever at 34 with the total contract value (TCV) being $4.1 billion. However, TCV for the last quarter stood at $4.5 billion.
Operating margins for the quarter stood at 21.1 percent, with a growth of 0.3 percent yoy and 1 percent q-o-q. Operating margin guidance, even for FY25, has been retained at 20-22 percent.
Jayesh Sanghrajka, CFO, said, “We had 80 bps coming from project Maximus - a margin expansion program, on the back of better pricing, value-based selling, and better benefits from efficiency. 40 bps was from a one-off benefit from one of the clients.”
Hiring plan
Infosys’ total headcount fell by 1,908 employees to 3,15,332, from 3,17,240 last quarter. In the first quarter of FY24, the headcount was 3,36,294, a reduction of 20,962 employees since. Voluntary attrition during the quarter rose to 12.7 per cent from 12.6 per cent in Q4. “Our utilisation is already at 85 per cent, and we have a little headroom left, so as we start seeing growth, we will look at hiring. We are looking at hiring 15,000-20,000 freshers this year depending on the growth,” the CFO said.
About 58.9 per cent of Infosys’ revenue came from North America, with a contribution of 3.1 per cent from India, an increase from last quarter’s 2.2 per cent. As far as verticals are concerned, Infosys has shown growth in the BFSI sector. The retail and communication sectors follow behind in terms of revenue share.
Biswajit Maity, senior principal analyst at Gartner, said, “Despite various microeconomic challenges and discretionary spending from clients, Infosys’s overall outlook remains positive as its deal pipeline remains good. A 3.6 per cent increase QoQ is a strong indicator of its performance. We’ve consistently highlighted that this year will bring growth. IT service buyers will be cautious with spending and focus on strong business outcomes. Organisations will carefully approach new projects in the first half of 2024, expecting a better environment later.” He added that over the past few years, Infosys has successfully attracted an increasing number of large deals through an effective large-deal pursuit strategy. Significant deal wins in FY24 are expected to drive revenue growth in FY25.
Commenting about the results, Shaji Nair, Research Analyst at Sharekhan by BNP Paribas said, “Infosys 3.6 per cent quarter-on-quarter revenue growth in constant currency, surpassing estimates led by broad-based growth across verticals, while the EBIT margin expanded by 100 basis points aided by Project Maximus, also beating expectations. Notably, the company is experiencing early signs of improvement in financial services in the US which augurs well for the stock. The strong Q1 numbers and upward guidance revision is likely to lead to an upward revision in earnings estimates.”
in-tech buy
Meanwhile, the company said it had also completed the acquisition of in-tech, a leading engineering R&D services provider focused on the German automotive industry which it had announced in April of this year.
Shares of the company were up 2.2 per cent higher during the day and closed at ₹ 1,764.05 per share on BSE, even though results were announced post-market closure.