Infosys Ltd Q3 FY24 Earnings Conference Call Insights

Key highlights from Infosys Ltd (INFY) Q3 FY24 Earnings Concall

• Declining Revenue Growth
  • Reported a 1% decline in revenue QonQ and YonY in constant currency terms.
  • For the first three quarters of FY2024, revenue grew only 1.8% YonY in constant currency.
  • The company is seeing lower demand for digital transformation and more interest in cost optimization and efficiency programs.
  • Expects revenue growth for FY2024 to be 1.5-2% in constant currency, lowering its previous guidance.
• Margin Improvement Efforts
  • Operating margin was 20.5% for the quarter, a decline of 70 bps sequentially.
  • The company is making progress on its margin improvement plan, Project Maximus.
  • Key drivers of the margin decline were salary increases, impact of a cyber incident, and lower volumes.
  • These were partially offset by benefits from higher utilization, lower SG&A expenses, and other cost optimization.
  • Remains confident that Project Maximus will drive margin expansion over time.
• Record Large Deal Wins
  • Infosys signed $3.2 billion in large deals for the quarter, 71% of which was net new, including one mega deal.
  • Large deal value for the first three quarters stands at $13.2 billion, the highest ever.
  • 71% of large deals were net new wins, while renewals were lower than previous quarters.
  • Large deal wins are helping Infosys gain market share across industries like financial services, telecom, and high-tech.
• Traction in AI
  • Seeing strong demand for its generative AI offering, Topaz.
  • Trained 100,000 employees on generative AI and is deploying use cases for clients.
  • Infosys is integrating Topaz into solutions combined with its Cobalt cloud capabilities.
• Challenging Communication Sector Growth
  • Clients in communication sector face growth challenges due to pressure on IT spending.
  • Uncertainty remains around medium-term spending plans.
  • Clients prioritizing cost optimization and vendor consolidation.
  • Delayed decision making and project deferrals as clients conserve cash.
• Margin Outlook
  • Operating margins declined 70 bps sequentially in Q3 to 20.5%.
  • Underlying margins remain resilient despite one-time impacts this quarter.
  • Confident about medium-term margin expansion from initiatives around automation, value-based pricing etc.
  • Margin guidance retained at 20-22% for FY24.
  • Less wage pressure expected going forward.
• Client Spending Trends
  • Spending steady on recent cost takeout and other projects signed in last 6-9 months.
  • Incremental project spending slowing in line with market conditions.
  • No major changes in broader client spending behavior.
• Geography Trends
  • Europe growth strong in Q3, North America weaker.
  • Healthy large deal pipeline in both regions.
  • Current growth trends expected to continue near-term.
• Pricing Trends
  • Seeing improved pricing stability compared to past years.
  • Conscious pricing through value-based selling initiatives.
  • No significant additional pricing pressure on renewals or large deals.
• Platform Business Trends
  • Clinical platform business continues to see good traction.
  • However, overall platform business revenue flat last 2 years.
  • Platforms used extensively for internal productivity and services.
• Revenue Growth Expectations
  • Environment remains uncertain in near term.
  • Digital transformation demand needs to pick up.
• Headcount and Utilization
  • Optimized headcount with utilization levels having room.
  • Comfortable fulfilling demand given fresher hiring and availability of lateral talent.
  • Decline in headcount not a concern given levers at disposal.
  • Utilization improvement a potential source of margin upside.