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.