Infosys Q4 Results Review - Chasing High Tide, Focused On Execution: Prabhudas Lilladher

Prabhudas Lilladher Report

Infosys Ltd. reported revenue of $4.6 billion, down 2.2% QoQ in constant currency and down 2.1% in reported terms, below consensus of 0.6% QoQ decline. With Q4 exit FY24 growth translates to 1.4% CC YoY, tad below the lower-end of the guidance band (1.5-2% YoY).

The sequential decline was led by re-scoping of large deal within Financial Service vertical that created an impact of 100 bps QoQ. Even if we eliminate the one-off impact, the weakness was visible across key verticals and geographies. Despite the softness in revenue growth, deal total contract value was attractive at $4.5 billion, which translates to a full year TCV of $17.7 billion (1.0 time).

The management indicated that it hasn’t witnessed any meaningful change in the spending behavior within its client portfolio. The enterprise clients continued to reprioritise spends on critical business aspects to drive cost optimisation through AI and automation.

While discretionary spends, continue to get scrutinized even more, leading to a deferral in project closures and execution challenges. The weakness in execution is evident through the slower pace of ramp up on the multiple mega deals awarded in FY24.

Despite recording the highest-ever deal TCV in FY24, Infosys has given out a muted revenue guidance to the tune of 1-3% YoY CC.

We believe, the conversion challenges continue to persist in FY25 on account of slowdown in dictionary spends and delay in decision-making, which might lead to further pausing or deferring programs that are non-critical to business enterprises.

Although, Q4 had witnessed a dip in margin (100 bps impact attributed to large-deal re-scoping), the management is flexing on multiple levers to improve margins:

1. improve utilisation,

2. optimise subcon and rationalise pyramid,

3. improve offshoring and near-shoring.

Despite anticipating muted revenue growth in FY25, the management was optimistic to drive margins to an upwards trajectory and has maintained its guidance to the earlier band of 20-22%.

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