- 17 Jan 2025
- ICICI Securities
INFOSYS: HEALTHY OVERALL PERFORMANCE; WEAK Q4 DAMPENS SENTIMENT
News: Infosys reported a healthu quarter on the revenues front (despite seasonality) in Q3FY25 as revenue increased by 1.7% QoQ/6.1% YoY in CC terms to US$ 4,939mn. Vertical wise on a YoY basis in CC terms, the company saw a broad based growth with Manufacturing (15.5% of the mix), ER&US (13.5% of the mix), Hi -Tech (8% of the mix), Lifesciencess (7.6% of the mix), Financial Services (28% of the mix), Communication (11.2% of the mix), Others (2.7% of the mix), Retail (14% of the mix) grew by 10.7%, 8.6%, 8.4%, 6.3%, 6.1%, 4%, 3.2% and 0.1% respectively. Geography wise, CC terms on YoY basis, India (3.1% of the mix), Europe (30% of the mix) and North America (58.4% of the mix) led the growth and reported growth of 40.1%, 12.2% & 4.8% while RoW (8.7% of the mix) declined by 11%. EBIT margin improved QoQ by ~20 bps at 21.3% with tailwinds of 30 bps from Project Maximus, 40 bps from currency movement and 20 bps from lower costs relating to provisions for customer support were offset by 70 bps from furloughs and higher third-party costs. Large deal TCV came at US$2.5 bn (63% being net new) vs. US$2.4 bn in the last quarter. The company’s net employee count for the quarter reported a growth of 5,591 employees totalling to 3,23,379 employees, while attrition inched up ~100 bps sequentially to 13.7%. On the AI front, Infosys has built 4 GenAl models and is developing over 100 new agents with an aim of deploying it to the clients.
Views: Notably, North America returned to growth after four sequential quarters of decline, signaling positive momentum. While Financial Services in Europe and USA markets showed robust traction, Retail benefited from improved consumer sentiment, amid persistent challenges in Hi-Tech, Communications, and Auto segments in Europe due to macroeconomic factors. The management stated that the deal pipeline is healthy with a mix of large and small deals with focus on cost and portfolio rationalization type of deals. The revenue guidance was revised upwards to 4.5-5% (vs 3.75-4.5%), albeit implies a weak Q4 due to seasonality impact from lower working days, furloughs and absence of third-party revenues. It further reiterated its margins are expected to be in the range of 20-22%. The margins, in near term would face pressure from two stage wage hike effective January 2025 and April 2025.
Impact: Neutral