Infosys Ltd Q4 FY24 Earnings Conference Call Insights

Key highlights from Infosys Ltd (INFY) Q4 FY24 Earnings Concall

• Generative AI
  • Seeing excellent traction for generative AI work across software, optimization, support, advisory.
  • Working with open and proprietary LLMs.
  • Generated over 3 million code lines using generative AI models.
  • Trained models on client data for specific use cases.
  • Rolled out generative AI platform for 60,000 users at US client.
• Headcount
  • Headcount at Q4 end was over 3,17,000, leading to increase in utilization excluding trainees to 83.5%.
  • LTM attrition for the quarter reduced by 0.3% to 12.6%.
  • INFY to leverage remaining utilization headroom along with fresher/lateral hiring.
• Cash Flows
  • FY24 free cash flow was $2.9 billion, up 14% year-over-year.
  • Strong Q4 free cash flow of $848 million, highest in 11 quarters.
  • Unbilled revenue down $291 million in FY24, aiding cash flows.
  • Dividend payout at 85% of FY24 free cash flow.
• Large Deal Ramp
  • INFY cited discretionary/digital spend slowdown offsetting large deal ramp benefits.
  • Large deals helping in cost efficiency and consolidation areas.
• Contract Rescoping
  • 1%+ Q4 revenue impact from renegotiating financial services client contract.
  • Reflects amount of work done that got rescoped, not full 15% contract portion.
  • Margin impact from revenue loss, not penalty.
• Margin Expansion Timeline
  • INFY reiterated mid-term margin improvement endeavour via cost optimization program.
  • Highlighted headwinds like compensation and tailwinds like utilization, subcons, automation.
• BFSI Vertical Performance
  • INFY attributed to higher discretionary exposure, mortgage softness.
  • Expects better BFSI performance in FY25 versus FY24.
  • Contract renegotiation impact fully reflected in Q4, no further impact.
• Utilization Trends
  • INFY highlighted utilization increase to 80.7% from 77%, with headroom till 84-85%.
  • Wage hikes to factor inflation, peer practices when decided later.
• Generative AI Productivity
  • Seeing productivity benefits but no client negotiations for lower rates yet.
  • Benefits currently focused on narrow client/enterprise software capabilities.
  • Able to retain part of the savings currently, future evolution unclear on gen AI savings.
• Discretionary Spend Outlook
  • The discretionary spending environment is similar to Q3 and Q4 of the previous fiscal year.
  • The company sees outlook similar to recent quarters.
  • Discretionary/digital transformation spend expected to remain at current reduced levels.
• Third-Party Costs
  • INFY cited procurement needs for large deals, seeing it as sticky long-term business.
  • Overall deal margins more important than isolating third-party cost component.
• Subcontractor Utilization
  • INFY views 5-6% as optimal range, having reduced from peak by 3%.
  • Believes there is some further scope for reduction under cost optimization program.
• Margin Guidance
  • The company aims to expand margins from the current level in the mid-term.
  • Factors like business mix, pricing pressure, and employee costs have impacted margins over the years.
  • Tailwinds like lower provisions and non-recurrence of visa costs will support margins in the near term.