Infosys Q1 Results: Recovery In US Financial Services Market In Sight, Says CEO

The IT bellwether will report its earnings for the first quarter of the current financial year later this afternoon. Infosys Ltd. is expected to see a growth in revenue and margin expansion.

Meanwhile, the IT services firm's net profit may fall 22% sequentially to Rs 6,253.1 crore in the quarter ended June, according to a consensus of analysts' estimates tracked by Bloomberg.

Brokerages expect Infosys to report a constant-currency growth of 2.5% on the back of large-deal ramp-ups and positive seasonality. The company's revenue growth rate is expected to be the highest among the large-cap peers.

According to a consensus of analysts' estimates tracked by Bloomberg, the net profit of Infosys Ltd. will likely see a decline of 22% while the revenue may see an uptick.

Infosys Q1 FY25 Earnings Estimates (Consolidated, QoQ)

• Revenue may rise 2.3% to Rs 38,810.6 crore.

• Profit may fall 22% to Rs 6,253.1 crore.

• EBIT margin may expand 57 basis points to 20.67%.

Ahead of the earnings announcement, Infosys' stock rose as much as 1.13% during the day to Rs 1,745.5 apiece on the NSE. It was trading 0.72% higher at Rs 1,738.5 per share, compared to a 0.23% decline in the benchmark Nifty as of 12:02 p.m.

The share price has risen 17.8% in the last 12 months and 13% on a year-to-date basis. The relative strength index was at 81, implying that the stock may be overbought.

Thirty-two out of the 47 analysts tracking the company have a 'buy' rating on the stock, eight recommend a 'hold' and seven suggest a 'sell', according to Bloomberg data. The average of 12-month analyst price targets implies a potential upside of 21%.

Information technology majors, Tata Consultancy Services Ltd. and HCLTechnologies Ltd., reported first-quarter earnings were in-line with estimates, meaning the earnings downgrade is over after a prolonged cycle, according to HSBC.

This could also indicate a turnaround in demand softness that the industry has been reeling in.

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Shares of Infosys were the second-highest gainer in the benchmark Nifty 50 index, only behind its peer Tata Consultancy Sevices Ltd. The counter was trading higher by 0.785 at over a two-year high at Rs 1,739 per share as of 12:32 p.m.

The counters of Tata Consultancy Services and LTIMindtree led the gains in the IT stocks gauge — NSE Nifty IT — by climbing 2.7% and 1.54%, respectively.

Meanwhile, L&T Technology Services Ltd. and Mphasis Ltd. were dragging the index. The IT index was 1.27% higher at 36,645 as of 12:42 p.m., compared to 0.05% advance in the NSE Nifty 50 index.

The deal pipeline for the IT bellwether, which was at $4.5 billion in the March quarter, is expected to get better, with the ramp-up of large deals starting to show results and reflecting in revenue, according to brokerages.

IT companies are on a spree to bag deals related to generative artificial intelligence, which is the bright spot in an otherwise muted environment. The management commentary on the demand environment, deal-win momentum, outlook for key markets and verticals will be closely watched.

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Market watchers expect the discretionary demand in the tech space to recover in the financial year 2025. For now, the sector is celebrating the lower revenue leakage on the book, however, a bigger recovery is more likely in 2025, Investec said in a report.

"We highlight that discretionary demand is unlikely to worsen further based on our proprietary G2000 database," said Nomura.

Large deal activity in the Banking, Financial Services, and Insurance sector is down and the general expectation is that this sector will improve in 2025, according to the brokerage. The easing of policy can stoke spending in a significant manner, Investec said.

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Infosys top-line during the fourth quarter of fiscal 2024 missed street estimates, while it forecasted its revenue to grow 1-3% in the ongoing financial year.

The revenue of India's second-largest IT services firm fell 2.1% sequentially to Rs 37,923 crore in the three months ended March 31. That compares with the Rs 38,576-crore consensus estimate of analysts tracked by Bloomberg.

For FY25, the management gave a revenue growth guidance of 1%-3% in constant currency terms. The IT firm expects the FY25 operating margin at 20%-22%.

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India's benchmark stock indices were trading little changed after hitting a fresh record high during morning trade on Thursday, as losses in heavyweights Reliance Industries Ltd. and HDFC Bank Ltd. weigh.

At 12:30 p.m., the NSE Nifty was trading 0.05% higher at 24,624.30, and the S&P BSE Sensex was trading 0.11% higher at 80,803.11. The Nifty hit a fresh record high of 24,678.90, and the Sensex touched a life high of 80,910.45 during morning trade.

Markets started on a cautious note, and after that, they saw a good recovery. The NSE Nifty 50 is in a 'buy on dip' mode, with buying emerging on dip towards 24,500, said Nilesh Jain, head of technical and derivative research at Centrum Broking. According to the derivative data from the Nifty 50's weekly expiry, the 24,500 level is providing crucial support, he said.

Tata Consultancy Services Ltd., Infosys Ltd., Mahindra & Mahindra Ltd., State Bank of India, and ITC Ltd. were contributing to the Nifty 50.

HDFC Bank Ltd., Reliance Industries Ltd., Bajaj Auto Ltd., Asian Paints Ltd., and Coal India Ltd. were weighing on the index.

On NSE, seven sectors decline and five advanced. The NSE Nifty Media declined the most, and the NSE Nifty IT rose the most.

Broader markets underperformed their benchmark peers. The S&P BSE Midcap and Smallcap were trading 1.07% and 0.93% lower, respectively.

On BSE, 16 sectors declined and four rose. The S&P BSE Capital Goods declined the most, and the S&P BSE rose the most.

Market breadth was skewed in favour of sellers. Around 2,559 stocks declined, 1,193 stocks rose, and 144 stocks remained unchanged on BSE.

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Thirty-two out of the 47 analysts tracking the company have a 'buy' rating on the stock, eight recommend a 'hold' and seven suggest a 'sell', according to Bloomberg data.

The scrip has risen 17.8% in the last 12 months and 13% on a year-to-date basis. The average of 12-month analyst price targets implies a potential upside of 21%.

Tata Consultancy Services said that it had onboarded 11,000 trainees in the quarter-ended June and plans to hire 40,000 employees for the year ending March 2025. 

The headcount of India’s largest software services exporter rose by 5,452 to 6,06,998 in the first quarter, the company said. Its headcount fell by 13,249 in FY24. Attrition dipped to 12% in Q1 as compared to 12.5% a quarter ago.

Meanwhile, the employee headcount for HCL Technologies Ltd. stood at 2.19 lakh as of June, with a reduction of 8,080 employees, of which 7,390 was due to divestment. The company added 1,078 freshers.

The software major's attrition stood at 12.8% for the last 12 months, marginally higher than the 12.4% recorded in the fourth quarter of the previous financial year.

The gauge for India's tech stocks —  NSE Nifty IT — added over Rs 81,000 crore in investors' wealth as the benchmark scaled new high on Thursday.

The IT index was 1.93% higher at 39,910 as of 2:42 p.m., compared to 0.71% advance in the NSE Nifty 50 index. The LTIMindtree and Tata Consultancy Services were leading the pack by climbing nearly 3%, each. Shares of Wipro and Coforge were also contributing to the advance.

Meanwhile, Infosys's shares were trading 1.8% higher at Rs 1,756 per share with a Rs 13,000 crore addition in investors' wealth.

For the previous financial year, the IT major issued a final dividend of Rs 20 per share with an additional special dividend of Rs 8 apiece. During FY23, Infosys gave a total dividend of Rs 35.5 per share, including a final dividend of Rs 17.5 apiece.

For the financial year 2022, the IT firm issued a total dividend of Rs 32.5 per share, while for the previous fiscal, shareholders received a total of Rs 30 per share.

The revenue of the tech major rose by 3.7% to Rs 39,315 crore against the previous quarter. This compares to a bloomer estimate of Rs 38,810.6 crore.

The revenue in constant currency terms rose 3.6% sequentially.

Infosys raised the revenue guidance to 3-4% for FY25 from 1-3% earlier.  

• North America: 1.2% decline

• Europe: 8.6% advance

• Rest of the world: 0.6% advance

• India: 18.4% advance

• Financial services: 0.1% decline

• Retail: 3% decline

• Communication: 5.2% advance

• Energy, Utilities, Resources & Services: 5.2% advance

• Manufacturing: 6.4% advance

• Hi-Tech: 1.5% advance

• Life Science: 2.7% advance

• Others: 1.7% advance

The company had an excellent start to FY25 with strong and broad-based growth, operating margin expansion, robust large deals, and highest ever cash generation, according to Salil Parekh, CEO and MD. "This is a testimony to our differentiated service offerings, enormous client trust, and relentless execution.”

“With our focused approach for generative AI for enterprises working with their data sets on a cloud foundation, we have strong traction with our clients. This is building on our Topaz and Cobalt capabilities,” he added.

Relentless drive on cost optimization through Project Maximus is reflected in the all-around improvement in key operating metrices leading to 1.0% growth in operating margin in Q1, according to Jayesh Sanghrajka, CFO.

"We had the highest ever FCF generation at $1.1 bn and ROE increased to 33.6% due to higher payouts to investors.”

Total number of employees has declined 6.4% year-on-year at 3,15,332. It has also declined sequentially by 0.6%.

Number of large deal wins for Infosys was the highest ever at 34 with a total contract value of $4.1 billion, 57.6% of which were being net new contractss.

Infosys consolidated revenue rose 3.7% in the first quarter of the current financial year, beating analysts' estimates.

The IT major reported a revenue of Rs 39,315 crore in the quarter ended June, according to an exchange filing on Thursday. Analysts tracked by Bloomberg had a consensus estimate of Rs 38,810.6 crore.

Infosys Q1 FY25 Earnings Highlights (Consolidated, QoQ)

• Revenue up 3.7% to Rs 39,315 crore versus Rs 37,923 crore (Bloomberg estimate: Rs 38,810.6 crore).

• EBIT up 8.8% to Rs 8,288 crore versus Rs 7,621 crore (Estimate: Rs 8,024.6 crore).

• Margin expanded to 21.1% versus 20.1% (Estimate: 20.67%).

• Net profit fell 20% at Rs 6,374 crore versus Rs 7,969 crore (Estimate: Rs 6,253.1 crore).

Voluntary attrition for Infosys stood at 17.3% during the period under review, compared with 12.6% in the March quarter, and 12.7% in the year-ago period.

Tata Consultancy Services saw attrition dip to 12% in Q1 as compared to 12.5% a quarter ago.

HCL Technologies Ltd.'s attrition stood at 12.8% for the last 12 months, marginally higher than the 12.4% recorded in the fourth quarter of the previous financial year.

The number of clients worth $100 million or more fell to 38 from 40 a quarter ago.

Top five clients accounted for 13.4% of the business during the period under review, as against 13.6% in the previous quarter.

Free cash flow for the IT major rose to Rs 9,155 crore during the quarter under review against Rs 7,032 crore a quarter ago.

The consolidated cash and investments declined to Rs 35,943 crore against Rs 39,005 crore in the previous quarter.

Infosys's stock rose as much as 2.28% during the day to over a two-year high of Rs 1,765.4 apiece on the NSE. It pared gains to close 1.85% higher at Rs 1,758.05 apiece, compared to a 0.78% advance in the benchmark Nifty 50.

The scrip was the top gainer among the Nifty 50 stocks.

"All geographies and most industry groups saw sequential growth. Volume growth turned positive after several quarters. There are early signs of improvement in financial services, in the US," Chief Executive Officer and Managing Director Salil Parekh said.

Infosys CFO said 80 bps margin improvement from 'Project Maximus', which is a margin improvement plan across five pillars and over 20 tracks.

Infosys CFO says the company will hire 15,000-20,000 freshers in this fiscal year.

"We are not at the stage of disclosing or quantifying revenue from GenAI. We are making huge strides in GenAI. The focus is on what enterprises are doing. They are working on their own data sets," CEO Parekh said.

"We are planning to work with all regulations of the government. We support whatever regulations and guidelines that come in."

Infosys CFO said value-based selling, offshoring, nearshoring are the levers to expand margin further.

"India business is doing well for us in terms of growth. It is a small part of our business."

"We are not combining GenAI revenue with AI revenue. AI has been going on for a while, there is much more interest of clients on GenAI. Our focus is on enterprise GenAI."

"Large deals are converting as per expectation. Deals are in the cost efficiency, consolidation, no appetite yet for transformation deal."

The American Depository Receipt or ADR of Infosys listed in the US opened 0.58% lower after the quarterly results.

Infosys Q1FY25 earnings call has started. CEO and MD Salil Parekh, CFO Jayesh Sanghrajka and Sandeep Mahindroo, Head of Investor Relations, are speaking to analysts.

"We are seeing some recovery in US financial services, specifically in the areas like. Mortgages, capital markets, and card payments, you know, and the larger clients there. So we are seeing some volumes coming in and some recovery, some early signs of recovery in those areas."

"On Europe, so what we are seeing is different things in different places. In the Nordic countries we've had good traction over the last few quarters and even a little bit before in how we've engaged with clients and we've seen some good expansion of our large programs. We've seen some of that in continental Europe broadly," the CFO said.

"We've seen a different type of a positive traction in Germany, where we are seeing some of our local Europe competitors are having more constraints and where we are benefiting from those constraints as we are expanding," he added.

• Seeing early signs of improvement in US BFSI especially with regard to mortgage and payments

• Discretionary tech spending by clients remains weak

• ⁠Retail vertical continues to face challenges

• Sequential improvement in margin was led by better realization and continued focus on operational efficiency

• Yet to take a call on timing of wage hike for the FY25.

• 3-4% revenue growth guidance for FY25 takes into fact that H1FY25 would be better than H2FY25.

• Margin levers include improving employee pyramid, better realization and near shoring

• Seeing strong interest among clients with regard to adoption of Gen AI based solutions