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.