Thursday, September 21, 2023

Infosys Reports Consecutive Decline in Net Profit, But Raises Revenue and Margin Guidance for FY23

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  • India’s second largest IT services provider Infosys reported a 5.7% sequential decline in its net profit.
  • The company blamed the wage increases for this, stating that it was in the double digits for some of its employees.
  • Despite this, Infosys’ employee turnover deteriorated compared to the March quarter.
  • The total contract value of the major deal wins was $1.7 billion.

India’s second-largest IT services company Infosys today reported a sequential decline in net profit of 5.7% to ₹5,360 crore in the June quarter, from ₹5,686 crore in the previous quarter. Management said the decline was largely due to wage increases.

Revenues grew 6.8% sequentially to 34,470 crore in the same period. Consistent growth in currency income was 5.5% sequentially and 21.4% yoy. Despite several macroeconomic headwinds, the company said its deal pipeline remained strong.

Despite a weak sequential performance, burdened by supply-side challenges and high travel costs, Infosys raised its revenue forecast for FY23 to 14-16%, up from its previous forecast of 13-15%.

“We continue to gain market share and see a significant pipeline driven by our Cobalt cloud capabilities and differentiated digital value proposition,” said Infosys CEO and MD Salil Parekh, sounding an optimistic note for the rest of FY23.

Infosys also noted that it closed major deals in the June quarter for a total contract value of $1.7 billion. However, the company revealed that its customers of more than $100 million remained at 38 — the same as in the March quarter.

Most additions were in the over $1 million range, which rose to 877 from 853 in the previous quarter.

Here are Infosys’ latest earnings at a glance:

Particularities Q1 FY23 Q4 FY22 Q1 FY22
Revenue ₹34,470 crore ₹32,276 crore ₹27,896 crore
Net profit ₹5.360 crore ₹5.686 crore ₹5,195 crore
Margin 15.5% 17.6% 18.6%

Source: Company Reports

Infosys’ margins were under pressure, as was the rest of the IT industry – the June quarter net margin declined both sequentially and year on year.

Infosys expects wage increases to help reduce turnover

Chief Financial Officer Nilanjan Roy, said: “We are fueling the strong growth momentum with strategic investments in talent through competitive compensation recruitment and review. While this will impact margins in the near term, it is expected to reduce churn and position us well for future growth. We continue to optimize various cost levers to increase efficiency in operations.”

Much of the pressure on margins comes from personnel costs, which made up 53.2% of the company’s total revenue in the June quarter – Infosys spent 532 for every 1,000 it earned during the first three months of FY23.

These wages have increased marginally sequentially, from 51.6% in the March quarter, while the year-over-year increase looks better than last year’s 54.6%.

Company turnover has deteriorated marginally in the past 12 months to 28.4%, from 27.7% in the March quarter. The total workforce was 3,35,186, up from 3,14,015 in the previous quarter, implying a net addition of 21,171 employees to the roster.,

The declining rupee is expected to help Infosys’ earnings, according to a report by Kotak Institutional Equities.

North America remains Infosys’ bread and butter, contributing more than 60% to the company’s total sales. India remains a fringe market for the IT services giant. The company said it continues to see strong demand in several geographies, especially in the US.

On a sequential basis, Indian business shrank nearly 19%, and North American market share grew marginally despite concerns about the US recession.

Geography Q1 FY23 Change (QoQ)
North America 61.8% 0.7%
Europe 25% -0.8%
Rest of the world 10.6% 3.9%
India 2.6% -18.8%

Source: Company Reports

What should be a relief for the company is growth in key segments such as financial services, energy and retail. Communications and manufacturing segments fell the most, reflecting the impact of inflation on these sectors.

Segment Result Change (QoQ)
Financial services ₹2,754 crores 7%
Retail ₹1,538 crore 1%
Communication ₹794 crore -10%
Energy ₹1,145 crore 3%
production ₹385 crore -10%
Hi-tech ₹672 crore 0%
life sciences ₹535 crore -8%
others ₹41 crore -46%

Source: Company Reports


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