scorecardInfosys slashes FY24 growth guidance by more than half as clients defer decisions, starting dates
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Infosys slashes FY24 growth guidance by more than half as clients defer decisions, starting dates

Infosys slashes FY24 growth guidance by more than half as clients defer decisions, starting dates
Business5 min read
  • Revenues in constant currency grow by 1% QoQ to $4,617 million in Q1FY24.
  • Sales growth guidance for FY24 slashed by more than half from the earlier 4-7%.
  • Financial services sector sees maximum pain as clients defer decision-making on large transformational deals.
India’s technology services sector has officially hit the slow lane with Infosys cutting its revenue guidance for the financial year by more than half. The company said on Thursday that it expects to grow its revenues between 1%-3.5% in FY24 against 4-7%. The company retain margins between 20%-22% through FY24.

Explaining the rationale behind the guidance cut, Salil Parekh, CEO of Infosys, said: “We have seen signing deals but the start date of deals are getting delayed. We have seen volumes in some industries slowing and decision making has also slowed in large programmes. In the short-term, we see a slowdown in discretionary deals. Revenues from large deals will flow through in the latter part of the year.” From the contrasting commentaries and performance by companies in the sector, analysts believe that growth dispersion would increase despite the aggregate slowdown.

The sharp cut in guidance came as a surprise as the financial performance of Infosys was in line with the market’s estimates. It reported a revenue growth of 1.4% quarter on quarter to $4,617 million. In constant currency, the company’s revenues grew 1% sequentially and 4.2% year-on-year. Large deals (total contract value) for the quarter was at $2.3 billion, with net new deals accounting 56.1% of the value.

While there is a slowdown in execution of the existing deal pipeline, velocity of new contracts suggests that the industry’s medium to long-term prospects look robust. Operating margin for the quarter was stable at 20.8%. The slowdown is more pronounced in the financial services sector.

During the quarter, the company’s net profit declined 3% sequentially to Rs 5945 crore but grew by 10.9% year-on-year. Revenue growth has decisively slowed, but the company’s total operating expenses during the quarter have risen by 14.8% year-on-year and 3% sequentially to Rs 3660 crore. The company’s utilisation levels excluding trainees was at 81.8% in Q1FY24 against 84% in the same corresponding quarter last year. On a positive note, attrition during the quarter is down to 17.3% against 20.9% in the previous quarter and 28.4% in the year ago period.

Parekh said that the company’s generative AI capabilities were expanding well, with 80 active client projects. Topaz, the comprehensive AI offering by Infosys, has been resonating well with clients. The Street has also been concerned over margins, but the management is confident that profitability is resilient. “Q1 operating margins were resilient in an uncertain macro environment on the back of our continued focus on cost optimization. The company’s rigorous operational discipline including improved productivity measures and higher utilization helped margins for the quarter” said Nilanjan Roy, CFO.

“Free cash conversion was robust at 96.6% of net profits. Execution of strong capital allocation policy resulted in higher payouts to investors and improved ROE to 32.8%” he added.

Infosys had disappointed analysts with its performance in the fourth quarter of FY23. The company’s revenues in constant currency had declined 3.2% sequentially, while dollar terms, sales dipped by 2.3% to $4,544 million. Rupee revenues declined by 2.3% quarter-on-quarter to Rs 37,441 crore. The decline was higher than what the Street had anticipated, leading to a sharp decline in the stock prices of most frontline IT stocks.

The slowdown in the sector’s frontline companies had spooked the market last quarter. While the first quarter continues to show signs of weakness, the decline has not been very drastic. Revenue growth of Infy’s larger peers reported either flat to negative growth in constant currency. TCS reported a 0.4% growth in idollar revenues, its sales in constant currency during the June quarter of FY24 came in at 0.2%. Margins declined 130 basis points sequentially to 23.2%. The deal pipeline remained robust at $10.3 bn, which was higher by 2.2% sequentially and 24.4% year-on-year. After TCS reported its results, The company’s management said that the demand conditions were similar to that witnessed in March this year. The uncertainty has not been resolved and that the company continued to be cautious.

Wipro, however, reported a sequential decline of 2.4% in its dollar revenues in the June quarter of FY24, while in constant currency sales declined 2.8% quarter on quarter. Wipro’s guidance is not very promising either. The company said that revenue from the IT services business segment is expected to be in the range of $2,722 million to $2,805 million. This translates to a sequential guidance of -2.0% to +1.0% in constant currency terms. Management commentary continued to flag near-term risks across the US and Europe, which are core markets of India’s IT services companies.

Analysts were expecting the sector to post a rather muted Q1, thanks to rising risks of a slowdown across developed markets like Europe and the United States of America. A slower deal pipeline conversion was expected to impact volume growth in what is a seasonally strong quarter. In a note ahead HDFC Securities said growth dispersion would increase despite the aggregate slowdown. Analysts at HDFC Securities added that their industry checks and high-frequency indicators showed no change in the demand environment in the last two months even as vertical-specific variability could continue.


Company

Revenue in $

Sequential Growth

Operating Margin

Net Profit

Infosys

$4,617 million

1.4%

20.8%

Rs 5945 crore

TCS

$7226 mn

0.4%

23.2%

Rs 11,070 crore

Wipro

$2778.5 (mn)

-2.1%

16%

Rs 2870 crore



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