Infosys Ltd Q2 FY24 Earnings Conference Call Insights

Key highlights from Infosys Ltd (INFY) Q2 FY24 Earnings Concall

• Financial Performance and Margin
  • Q2 FY24 saw strong performance with 2.3% QoQ and 2.5% YoY growth in constant currency.
  • Operating margin reached 21.2%, an increase of 40 bps sequentially.
  • Margin expansion driven by cost optimization, improved utilization, pricing.
  • One-time payouts in quarter also helped boost margin.
• Large Deals And TCV
  • Q2 large deal TCV was $7.7 billion, highest ever for the company.
  • 48% of large deals were net new.
  • 4 mega deals signed in Q2, excluding the additional $1.5 billion MOU.
  • Large deal wins indicate market share gains in areas like cost efficiency, automation, and AI.
  • The conversion of these large deals into revenue would be phased and not an immediate impact.
  • Seeing slowing decision making on closing new deals.
• Headcount And Attrition
  • Headcount stood at 328,000 employees, a decline of 2.2% sequentially, showing focus on optimization.
  • Reduced headcount by 5% over the past three quarters.
  • Utilization excluding trainees improved from 81.1% to 81.8%.
  • LTM attrition in Q2 further decreased to 14.6%, with no sequential change in quarterly annualized attrition.
  • Expects room for further utilization improvement, which can positively impact margins.
• Economic Environment And Demand Outlook
  • Environment of slow growth, delayed decision making, and low discretionary spend.
  • The company revised its growth guidance for FY24 to 1-2.5% in constant currency terms due to challenges in discretionary spend.
  • Financial services seeing spend reductions and project delays.
  • Communications facing growth challenges and cost pressures.
  • Manufacturing showing double digit growth but budgets still tight.
  • Retail focused on cost consolidation despite strong quarter.
  • The potential budget cycle for 2024 is uncertain, and discussions with clients indicate a continued emphasis on cost and efficiency.
• Volume Performance
  • Quarterly volume performance was constrained due to the slowing or stoppage of discretionary work and transformation programs.
  • Q3 and Q4 outlook expects usual seasonality with softer quarters and no major change in volume constraints.
• Proprietary Large Language Models
  • Infosys is not developing its own LLMs, but working with partners’ proprietary and open source models.
  • These models have applications in software development, text, voice, and video analysis, both for clients and Infosys’ internal use.
  • Infosys continues investing in generative AI, especially Topaz platform.
• Wage Hikes
  • Announced wage hikes, effective from November 1st.
  • INFY is optimistic that its cost optimization program, Project Maximus, will counterbalance wage increases and enhance margins in the next 18 months.
• Industry Softness
  • Seeing softness in financial services like mortgages, asset management, and parts of retail.
  • Similar view of softness as previous quarter in these industries.
• Pricing Dynamics
  • Like-for-like pricing in the IT services industry has remained relatively stable.
  • Clients occasionally seeking discounts, but pricing trends haven’t significantly deteriorated.