Hindustan Times (Lucknow)

Infosys sees another bleak fiscal ahead

US weakness, BFSI blues slow revenue growth to 1.9%; 1-3% growth seen in FY25

- Shouvik Das & Jas Bardia shouvik.das@livemint.com

NEW DELHI/BENGALURU: IT services major Infosys Ltd outlined its slowest growth guidance ever at the start of a financial year, expecting to grow its revenue 1-3% in constant currency terms in FY25.

The dim guidance comes on the back of its weakest-in-history full-year dollar-revenue growth of 1.9% for FY24, driven by revenue declines in its biggest business banking, financial services and insurance (BFSI), as also from its biggest region, North America.

Its previous slowest growth of 3% was in the year ended March 2010. In constant currency terms (which eliminates the effect of currency movement), Infosys’s FY24 revenue growth came in at 1.4%, lower than the 1.5-2% guidance it had given in January.

While declaring its fourthquar­ter and full-year earnings on Thursday, the company said its Q4 (January-March 2024) revenue slipped sequential­ly by 2.1%, hurt by lower demand from US businesses and from banks.

Investors gave a thumbsdown to the results. In pre-market trading at the New York Stock Exchange, Infosys’s shares were down 8.3% to $15.56. The results were declared after market hours in India.

However, the performanc­e did not stop the company from announcing its largest acquisitio­n yet on Thursday, a $480million buyout of In-Tech, a German engineerin­g research and developmen­t firm. In-Tech had $181 million in revenue last year and Infosys expects to close this acquisitio­n in the first half of the current fiscal.

Infosys’s CEO Salil Parekh clarified to a question from Mint that the company’s stated guidance for FY25 does not include the revenue growth that will be added from the acquisitio­n of In-Tech, which should bring at least 1% growth to the company’s net revenue in FY25.

Infosys’s performanc­e pales in comparison with market leader Tata Consultanc­y Services Ltd. Infosys ended FY24 with net revenue of $18.56 billion, with $350 million in incrementa­l business. Comparativ­ely, TCS added $1.15 billion in new business to end FY24 with $29.1 billion in revenue.

A Bloomberg poll of 45 analysts had predicted FY24 revenue of $18.5 billion and net profit of $2.94 billion from Infosys. The company’s FY24 net profit of $3.17 billion, a 6.2% rise from the year-ago period, beat this prediction. In the March quarter, revenue topped $4.56 billion, down 2.1% sequential­ly and unchanged from the year-ago period. And net profit rose 30.6% sequential­ly (and 28.7% y-o-y) in Q4 to $959 million, higher than another Bloomberg estimate of $739 million by 32 analysts.

The improved profit was on account of a one-time $232 million income-tax rebate and a reversal of $5 million net tax provisions.

Excluding this tax largesse, Infosys’s FY24 net profit declined 1.7% compared to the year-ago period. The company’s operating margin was 20.7% at the end of last financial year, compared to 21% in FY23.

Analysts were disappoint­ed. “We’d initially expected a flat end to the previous financial year, but that ended with a 2% sequential revenue decline. Even if recovery of business begins from the June quarter itself, this would mark a setback for Infosys’s revenue growth in FY25,” said Apurva Prasad, vice-president of institutio­nal research at brokerage firm HDFC Securities. “We had initially expected better revenue growth guidance for this year, but a slightly higher slowdown in discretion­ary spends seems to be affecting Infosys.”

“Some of the industries will see some changes—we see a better buying scenario in the financial services industry, and we expect a slightly slower growth in the next financial year for manufactur­ing—even though it will grow,” said CEO Parekh, under whose watch Infosys has now posted four straight quarters of muted performanc­e.

Discretion­ary digital transforma­tion projects are key for IT services firms to grow, since they allow companies such as Infosys and TCS to garner higher margins from clients. Higher discretion­ary deals and consistent conversion of such deals to revenue are also taken to be positive macroecono­mic indicators, which remains weak going into this financial year.

BFSI, which accounted for 29% of Infosys’ revenue in FY23, saw an 8.4% year-on-year revenue drop in FY24 to now account for just over 26% of the company’s revenue. In terms of geographie­s, North America— which accounted for nearly 60% of Infosys’ revenue—saw a 2.1% revenue decline for the year. These marked the biggest factors for Infosys’s bleak FY24.

Manufactur­ing and high-tech registered the highest growth for Infosys in FY24 in terms of verticals, growing 9% and 9.8%, respective­ly.

 ?? AP ?? Infosys ended FY24 with net revenue of $18.56 billion, with $350 million in incrementa­l business.
AP Infosys ended FY24 with net revenue of $18.56 billion, with $350 million in incrementa­l business.

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