Infosys, the second-largest IT services company in India, announced its financial results for the first quarter. The company reported a notable 11% increase in net profit, amounting to ₹5,945 crore, compared to ₹5,360 crore during the same period last year. However, Infosys had to lower its FY24 revenue guidance from 4-7% to a much lower range of 1-3.5% due to challenges in the demand environment.
In terms of regional revenue growth during the June quarter, Infosys experienced a positive 10.9% year-on-year growth in Europe and a 9.3% growth in India. However, revenue growth in North America was only at 2.3% YoY, while the ‘rest of the world’ segment faced a decline of 4.5% YoY. The company added 99 new clients during Q1FY24, reaching 1,883 active clients as of June 30, 2023.
Among the verticals, the financial services and communication segments reported a 4.7% and 6.1% YoY drop in revenue, respectively. In contrast, the manufacturing segment showed a healthy growth of 21.3% YoY, while the life sciences segment rose significantly by 14.9% YoY. The ‘others’ segment revenue also increased by 28% YoY. However, the retail and hi-tech segments saw relatively sluggish growth in Q1FY24.
Infosys’ CEO and MD, Salil Parekh, expressed satisfaction with the company’s solid Q1 performance, highlighting the 4.2% growth and the success of large deals worth $2.3 billion, which set a strong foundation for future growth. Additionally, he mentioned the development of generative AI tools based on an open-source model, with 40,000 employees trained in these areas.
“Our generative AI capabilities are expanding well, with 80 active client projects. Topaz, our comprehensive AI offering, is resonating well with clients. We see this being transformative for clients and enhancing our overall service portfolio” said Salil Parekh, CEO and MD.
“We have expanded the margin improvement program with a holistic set of actions for the short, medium and long-term, working on five key areas, supported by our leadership team”, he added.
Effects on the Market
However, the sharp downward revision of FY24 revenue guidance led to a significant drop in Infosys’ ADRs in the pre-market session on the NYSE, falling nearly 9%.
The company’s management aims to improve its operating margin in the future. The attrition rate improved to 17.3%, but the headcount of employees declined compared to the previous quarter.
During the opening deals today, the company’s stock experienced a significant decline of 9%, reaching Rs 1,311.60 on the BSE.
Analysts have mixed opinions on Infosys’ stock, with some expressing concern over the steep cut in the FY24 revenue outlook. Nevertheless, the company’s Q1FY24 revenue growth is expected to be positive, with moderate improvement in upper-end sales growth for 2023-24.
For instance, Motilal Oswal Securities stated in its earnings review that while the guidance cut is concerning and could have a negative impact on the share price in the short term (partly due to the 11% gain in the last month), they believe the miss is more related to perception rather than operational issues, as the earlier guidance was overly optimistic given the current business environment.
Conclusively, Infosys reported an increase in net profit for Q1FY24, but due to challenges in the demand environment, the company lowered its revenue guidance for FY24. Despite this, the company secured significant deals and expressed optimism about its generative AI capabilities. The ADRs experienced a sharp decline in response to the revised guidance. The management aims to enhance the operating margin, and analysts have varying opinions on the company’s stock performance.