Amidst an uncertain demand environment, IT major Infosys has lowered its revenue guidance steeply to 1-3.5 per cent from 4-7, as the company said the delay in decision-making was playing spoilsport. While revenue growth beat market expectations in Q1, profits fell short of the estimates.

The net profit for the quarter stood at ₹5,945 crore, an 11 per cent rise year-on-year(YoY). On a quarter-on-quarter (QoQ) basis, profit dipped 3 per cent from ₹6,128 crore last quarter. On a YoY basis, revenue from operations rose 10 per cent at Rs 37933 crore. Sequentially, revenue marginally increased by 1.3 per cent.

Infosys’ outlook for the rest of the year remains soft and cautious because they anticipate slow revenue translation of the deal pipeline. “Even as we won two mega deals recently, we have a strong pipeline of large and mega deals, we see revenue from some of these and other large deals towards the later part of a financial year. Keeping that in line with (we are) changing our revenue growth guidance for this financial year,” said Salil Parekh, CEO and MD.

As the global macroeconomic headwinds persist, the company is seeing some clients stop or slow down transformation programs and discretionary work in the short term. The slowdown is being seen in various sectors across financial services, mortgages, asset management, investment banking, payments, and telecom. The high-tech industry and parts of retail are also impacted.

The total contract value of large deals in the quarter stood at $2.3 billion against $ 2.1 billion in Q4. Notably, in Q1, it announced signing a $454 million deal with Danske Bank and winning an AI deal from an existing client with a target spend of $2 billion.

Operating margin for the quarter stood at 20.8 per cent, a growth of 0.7 per cent YoY and a decline of 0.2 per cent QoQ. Margin guidance, however, has been retained at 20-22 per cent.

The CEO noted that a broad, comprehensive margin expansion program has been launched. “We will work across five areas of the pyramid, efficiency, automation, improvements in critical portfolios, reducing indirect costs, and communicating and deriving value across our portfolio.”

Drop in headcount

Infosys’ total headcount fell by 6,940 employees from 3,43,234 in Q4 to 3,36,294 in Q1. Voluntary attrition during the quarter fell to 17.3 per cent from 20.9 per cent in Q3. The management noted that the hiring outlook will depend on changes in the demand environment and attrition rates. Albeit, the hiring target for FY24 wasn’t outlined. Addressing the delay in the annual wage hikes issue, the company said wage hikes are in “active consideration.”

Infosys’ American Depository Receipts (ADRs) fell by 9.40 per cent to $16.05 in Nasdaq’s pre-market session.

Sanjeev Hota, Head of Research, Sharekhan by BNP Paribas, said, “Infosys has once again surprised negatively with a steep downgrade on revenues guidance for FY24, this is much below our expectation of 4-6 per cent. We view the Infosys Q1 earnings performance as a negative read-through for the stock, driven by steep revenues in guidance revision, and also on relative basis Infosys like to lag industry-level growth in FY24 to peers like TCS and HCL tech.”

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