Categories Concall Highlights, Earnings, Technology

Infosys Ltd Q1 FY24 Earnings Conference Call Insights

Key highlights from Infosys Ltd (INFY) Q1 FY24 Earnings Concall

Management Update:

  • [00:02:42] INFY said, the company is working on 80 generative AI projects for clients and has trained 40,000 employees on generative AI.
  • [00:03:39] The company is seeing some clients slowing down or stopping work on transformation programs and discretionary work.
  • [00:10:59] INFY said it has lowered its revenue growth guidance for FY24 due to lower volumes and delayed regulatory approvals.

Q&A Highlights:

  • [00:12:58] Kawaljeet Saluja with Kotak enquired about the percentage of the guidance cut attributable to changes in the external environment and delayed signings of mega deals. Nilanjan Roy CFO replied that INFY’s guidance has come down due to discretionary spend cuts in 1Q and 2Q and delay in mega deal signings. However, INFY added that the pipeline is healthy and INFY is confident as it exits the year.
  • [00:14:32] Kawaljeet Saluja with Kotak queried about the learnings from the last two quarters of guidance misses, and what steps INFY has taken to improve its forecasting process. Nilanjan Roy CFO replied that INFY’s full-year guidance was based on the outlook at the time. However, the base business has not met expectations due to clients making discretionary cuts, and some large deals being postponed.
  • [00:15:51] Kawaljeet Saluja at Kotak asked about the pipeline post the conversion of the $2 billion deal. Salil Parekh CEO said INFY’s pipeline of large deals is strong. INFY’s efforts in cost, efficiency, automation, and consolidation are progressing well with clients, and have internally funded transformation programs.
  • [00:18:01] Yogesh Aggarwal of HSBC asked about the disconnect between the strength of the banking business and the weakness shown by other companies, and the source of market share loss. Salil Parekh CEO clarified that INFY’s financial services business is facing challenges from clients in different sectors and geographies. Some clients are delaying or cancelling projects, while others are choosing not to spend at all.
  • [00:19:51] Yogesh Aggarwal at HSBC queried about the assumptions behind the lower end of the revenue guidance that suggests almost negative or flattish growth for the next three quarters. Salil Parekh CEO replied that INFY’s revenue guidance is based on the current trends in discretionary projects and mega deals. The lower end of the guidance reflects the impact of delayed start dates for some mega deals.
  • [00:21:44] Ankur Rudra from JPMorgan asked if the slowdown in discretionary spending and delays in mega deals been more in the latter half of 1Q, or if it was linear throughout the quarter. Salil Parekh CEO answered that the slowdown in discretionary spending and delays in mega deals has been consistent throughout 1Q, and is more in certain industries, like financial services and retail.
  • [00:24:53] Ankur Rudra of JPMorgan enquired if INFY’s 5 point margin maximization plan a defensive move to protect margins in FY24, or if it’s a offensive move to expand margins. Salil Parekh CEO said INFY has launched a 2-year margin maximization program led by Jayesh, with 20 tracks and 30 leaders. The goal is to increase margins beyond current levels.
  • [00:27:29] Apurva Prasad from HDFC asked how has the business environment and client conversations changed from the beginning to the end of the quarter. Salil Parekh CEO answered that INFY’s large and mega deal pipeline is in excellent shape, but there is less traction on digital transformation and more focus on efficiency of cost and consolidation.
  • [00:29:44] Kumar Rakesh with BNP Paribas asked how confident is INFY in maintaining its current margins, despite the wage hike and cost saving program, and the potential headwinds and tailwinds to margins in future. Nilanjan Roy CFO replied that INFY saw a 70 bp benefit from cost optimization, but the majority of this was reinvested in employee-related compensation. INFY is actively considering compensation hikes and a new optimization program that will help it maintain margins within the guidance band.
  • [00:31:10] Kumar Rakesh with BNP Paribas queried about the specific pockets of weakness in volume that INFY is seeing, and if it’s more client-specific or industry-wide. Salil Parekh CEO said the weakness in volume is client-specific, with some clients in the US being more resilient than those in Europe. The weakness is largely due to discretionary spending being pulled back.
  • [00:36:58] Moshe Katri from Wedbush asked about the strength of INFY’s European business, and if it’s expected to continue. Salil Parekh CEO answered that INFY has seen good traction in Europe, especially in the manufacturing segment. However, the macro environment is affecting some sectors in Europe, and it’s to be seen how it play out in future.
  • [00:38:54] Moshe Katri at Wedbush asked if INFY feels there is an uptick in demand for lateral hires in India, and if yes, how does it affect INFY’s expectations for demand and pipeline in the coming months. Salil Parekh CEO said INFY’s utilization has gone up, headcount has reduced, and there is still room for utilization to increase further.
  • [00:42:00] Mukul Garg of Motilal Oswal asked about the impact of the discretionary slowdown on the overall TCV. Salil Parekh CEO replied that the slowdown in discretionary spending is not affecting the large deals pipeline, as these deals are more focused on cost or efficiency consolidation. The slowdown is affecting discretionary projects that were started earlier, and are more prevalent in certain industries.
  • [00:48:56] Bryan Bergin from TD Cowen asked about the potential cost savings and margin expansion that INFY expects to achieve from its 2-year margin expansion program. Salil Parekh CEO said INFY has launched a 2-year margin expansion program with five key pillars and is confident it will improve margins in the medium term, but cannot quantify potential savings or expansion yet.
  • [00:51:47] Nitin Padmanabhan from Investec asked why is INFY’s absolute employee cost up 2% despite a 3% decrease in employee headcount over the last 2 quarters. Nilanjan Roy CFO said INFY’s employee costs increased by 90 bps in 1Q24, due to an increase in variable pay and promotions. Third-party costs also decreased, which helped to offset some of the increase in employee costs.
  • [00:52:41] Nitin Padmanabhan with Investec also asked why is INFY’s variable pay increasing despite the deteriorating environment and lower company-wide performance. Nilanjan Roy CFO said that INFY is managing its workforce holistically, not based on a single quarter’s performance, and has headroom to grow volumes and is reskilling and rotating employees to mitigate attrition.

Most Popular

Cochin Shipyard Ltd (COCHINSHIP) Q4 FY22 Earnings Concall Transcript

Cochin Shipyard Limited (NSE:COCHINSHIP) Q4 FY22 Earnings Concall dated May. 26, 2022 Corporate Participants: Madhu S Nair -- Chairman & Managing Director Jose V J -- Director Finance Analysts: Vastupal Shah

All you need to know about Antony Waste Handling Cell in one article

Can you guess the name of the company that was listed during the IPO frenzy in 2020 and is the second largest player in the Indian municipal waste management industry?

Demystifying the Leading Non-Ferrous Recycling Company of India

“Hey, how is the market doing today?” “Oh!, its falling tremendously since morning” I am sure news like these might be a common topic of discussion for you nowadays. Interestingly,