Salil Parekh, managing director of the Bengaluru-based company, called the business environment “uncertain,” while saying that Infosys does not have a “clear view” of FY24 and would typically have more clarity in the fiscal third and fourth quarters.
His view reflected that of larger rival Tata Consultancy Services (TCS), which had flagged macroeconomic concerns on Wednesday, especially in the banking and financial services segment, while reporting weaker-than-expected results for the final quarter of fiscal 2023.
“In Q4, we saw changes in the market environment due to unplanned project ramp downs in some clients and delays in decision making which resulted in lower volumes, in addition to leading to revenue impact,” Infosys’s Parekh told reporters on Thursday.
For the January-March quarter, the IT major posted a 7.8% on-year increase in consolidated net profit to Rs 6,128 crore, below street expectations of around Rs 6,596 crore. Sequentially, net profit fell 7%.
Quarterly revenue was up 16% at Rs 37,441 crore, which also fell short of an ET poll of analyst estimates that pegged it at Rs 38,796 crore. Revenue was down 2.3% sequentially.
The company announced a final dividend of Rs 17.50 per equity share for the fiscal year ended March 31, 2023.
The FY24 revenue forecast by Infosys was the lowest since FY18 when it clocked 5.8% growth. In fiscal 2023 the company’s revenue growth fell below its own outlook of 16-16.5% in constant currency.
Parekh pointed to challenges in the banking sector in both US and Europe that have hurt decision making leading to a slowing cycle of deal closures. “Having said that, we have an extremely large pipeline…some of them (are) mega deals” with clients focused on efficiencies and consolidation, he added.
Most of the revenue decline in the January-March quarter was due to a fall in deal volumes and “one-timers” like project cancellations and client specific issues, said chief financial officer Nilanjan Roy.
The sectors most affected include hitech, retail, financial services (mortgages, asset management and investment banking) and telecom. For example, revenue from financial services, which contributes the most among verticals – 28.9% – to total income, fell 1.3% on quarter and 1.7% on year.
Sanjeev Hota, head of research at Sharekhan by BNP Paribas, said that the comments of the Infosys management did not inspire confidence.
“Infosys delivered a surprisingly weak set of numbers for Q4 and missed our and street estimates on all multiple fronts on the back of unplanned project ramp down and cancellation across the sectors,” he added.
Hiring dips
The IT services company reduced its headcount by 3,611 employees on a net basis during the March-ended quarter, reflecting the weak outlook for its services. It hired 29,219 professionals on a net basis, down 46% from the 54,396 employees hired in FY22.
It ended the year with an overall headcount of 3,43,234.
Infosys’ quarterly attrition stood at 20.9% compared to 24.3% in the previous three-month period and 27.7% a year ago.
The campus hiring number for FY23 stood at 51,000 without giving a target for this year.
Incidentally, TCS pegged its fresher hiring number at 40,000 for FY24.
The Infosys stock ended the day 2.8% lower at Rs1,388.60 on the BSE Thursday, underperforming a flat Sensex. The results were declared after-market hours. The Infosys ADR on the NYSE opened 8% lower at $15.71.
Meanwhile, TCS shares closed 1.6% lower at Rs3,189.95.
Weak margin forecast
Infosys, once considered India’s software bellwether, expects its operating margin between 20 and 21% in FY24. The guidance for FY23 was 21-22%.
Operating margin for 4Q FY23 stood at 21%, down 50 basis points sequentially, due to higher employee and travel costs. This compares to a 24.5% operating margin for TCS.
CFO Roy said the company will experience some headwinds to its margins in the current fiscal as well.
“So we will have some headwinds, which we will see with compensation. We will have some travel coming back. But we know that things like utilization, more automation etc, we also have a runway to increase the margins, but this gives us the necessary flexibility into next year,” said Roy.
Analysts are of the view that the sequential revenue decline in constant currency was worse than in the peak of Covid-19. “Also, FY24 guidance seems to be modest and below our expectations both on revenues and margins. Further TCV (total contract value) wins at $ 2.1 billion for the quarter was weak, down 36% on quarter and 9% on year,” said Sharekhan’s Hota.
Infosys reported large deal wins of $2.1 billion compared with $3.3 billion in the previous quarter and $2.3 billion a year ago. For the full fiscal 2022, Infosys had reported large deal orders of $9.6 billion compared to $9.8 billion in FY23. Infosys categorised “large deals” as those worth at least $50 million in value.
Uncertain industry outlook
On Wednesday, TCS underlined the “uncertain environment” and flagged a slowdown in decision making, while saying that its fiscal fourth quarter results were weaker than expected. It reported a 15% on-year rise in net profit for the fiscal fourth quarter to Rs 11,392 crore, on revenue of Rs 59,162, up 16.9%.
On a constant currency basis, revenue growth at the Mumbai-headquartered company was just 0.6% over the previous quarter. For the full fiscal year ended March 2023, the company clocked net profit at Rs 42,147 crore, up 10% on year while revenue rose 17.6% to Rs 2,25,458 crore.
For the 2023 fiscal, Infosys clocked net profit growth of 9% year on year at Rs 24,095 crore and reported 20.7% growth in revenue to Rs 146,767 crore.
