INFOSYS: STEADY REVENUE GROWTH WITH STABLE MARGINS; H2 TO BE SOFTE

News: Infosys reported decent revenues in Q2FY25 as revenue increased by 3.1% QoQ/3.3% YoY in CC terms to US$ 4894 mn, with 0.8% growth being inorganic contribution. Vertical wise on a YoY basis in CC terms, Manufacturing (15.7 of mix), EURS (13.5% of mix), Communication (11.9% of mix), Hi-Tech (8% of mix) and Financial Services (27.2% of mix) grew by 12.3%, 10.9%, 7%, 6% and 2.3% respectively, while Retail (13.3% of mix), Lifesciences (7.3% of mix) and Others (3.1% of mix) de-grew by 9.6% & 3.5% and 1.2% respectively. EBIT margin remained flat QoQ at 21.1%  as tailwinds of 80 bps from Project Maximus and 10 bps from currency movement was offset by 30 bps impact from acquisition (on account of amortization of intangible assets) and 60 bps from higher variable pay and other costs. On the GenAI front the company is developing its own SML model. Large deal TCV came at US$2.4 bn (41.6% being net new) vs. US$ 4.1 bn in Q1 and included 21 large deals. The company’s net employee count for the quarter reported a growth of 2,456 employees (after a decline in 6 quarters) totalling to 3,17,788 employees, while attrition inched up ~20 bps sequentially to 12.9%. The company declared a dividend of ₹21 per share.

Views: Infosys reported growth across all major geographies, barring North America which continued to decline for the fourth consecutive quarter. Moreover, transformation deals have still not recovered, as focus of clients still remains on cost takeout and immediate ROI deals. Large deal TCV too was underwhelming as it fell short of expectations, however, small deal pipeline growth in double digits was a consolation. The management revised its revenue guidance for FY25 to 3.75%-4.5% (vs 3-4% earlier), implying a muted CQGR growth of revenue in H2 of (-)0.7% to 0.2%, owing to seasonality, lower number of billing days etc. It maintained its margin guidance in the band of 20-22%. Wage hikes have been pushed towards Q4FY25 and Q1FY26 thus reducing some pressure from the margins in Q3.

Impact: Neutral