Infosys Q1 Results: FY24 Guidance Slashed As Clients Cut IT Spending

Infosys Ltd. has slashed its revenue growth guidance for fiscal 2024, despite its earnings meeting estimates in the April-June quarter, as clients cut back on discretionary spends amid fears of a slowdown in their biggest market.

Revenue of Infosys’ financial services vertical—which makes up nearly a third of the top-line—fell 1.45% sequentially to Rs 10,661 crore in Q1 FY24. Pricing pressures were also seen in retail (down 0.43%) and hi-tech (up 2.24%) but other verticals—including manufacturing (up 5.35%) and life sciences (up 2.53%)—supported earnings.

“In the short-term, we see some clients stopping, or slowing down transformation programs and discretionary work. This is especially so in financial services, in mortgages, asset management, investment banking and telecom,” Parekh said. “We also see some impact in the hi-tech industry and in parts of retail.”

Geographically, both the North American and European markets shrank marginally, with minor gains seen in Rest of World and India markets.

To be sure, Infosys has maintained the dealmaking momentum. The company clocked large deal wins worth $2.3 billion in April-June, up from $2.1 billion in the previous quarter. 

Its net client additions fell, from 115 in Q4 FY23 to 99 in Q1 FY24, but the active client base grew by nine to 1,883. As on June 30, the company had $940 million-plus clients and 38 that brought in more than $100 million each. Infosys’ top 10 clients brought in a fifth of the overall revenue.

“We are seeing more deals around efficiency,” Parekh said at the presser, underscoring the trend seen in the wider industry.

What’s notable, however, is the amount of AI work Infosys is doing for its clients. The Bengaluru-based IT firm is doing around 80 generative AI projects with clients and has trained 40,000 employees in the technology.

“Generative AI is going to transform everything in our portfolio,” Parekh said.

That Infosys has managed to clock an EBIT margin of 20.8% in April-June and aims to maintain it at those levels for the full fiscal is indicative of the myriad levers it’s deploying to shore up its operational profitability in the absence of meaningful revenue growth.

“Q1 operating margins were resilient in an uncertain macro environment on the back of our continued focus on cost optimisation,” Nilanjan Roy, chief financial officer at Infosys, said. “The company’s operational discipline, including productivity measures and higher utilisation helped margins for the quarter.”

It merits a mention here that Infosys’ headcount has now declined for two consecutive quarters—this time by a net 6,940 employees. The attrition rate has eased by 360 bps to 17.3% on a trailing twelve-month basis. The utilisation level has improved to 78.9% from 76.9%. The company is non-committal on its hiring plans for the year, and refused to comment on when the much-delayed salary hikes will be rolled out. 

On Thursday, shares of Infosys fell 1.73% to Rs 1,448.85 apiece on the BSE, even as the benchmark Sensex ended the day 0.71% higher at 67,571.90 points. The quarterly results were declared after market hours.