Infosys regains its stripes, outpaces peers on the back of financial services, India businesses

Infosys Ltd has started the financial year ending March 2025 on the front foot with industry-leading growth led by a recovery in its financial services segment and on the back of its India business.

Infosys’s revenue for the three months ended June totalled $4.7 billion, up 3.3% from the preceding quarter. At the heart of this growth is the company’s biggest contributor, its financial services business, which saw a sequential revenue boost of $91 million, accounting for almost 61% of Infosys’s overall incremental revenue of $150 million.

Infosys earned 28%, or $1.3 billion, of its overall first-quarter revenue from its financial services business.

“We had a strong performance in Q1 on volumes, as well as the point that we made on financial services in the US,” said Salil Parekh, chief executive officer of Infosys, during a post-earnings briefing at the company’s Bengaluru office. “Second, we had a very strong performance on large deals, which gives us more visibility into this financial year.”

The company’s strong start to 2024-25 is a respite from its lacklustre performance last year when it reported its slowest-ever dollar revenue growth of 1.9%.

India’s second-largest software services, once regarded the Indian IT services industry’s bellwether, surprised investors on the revenue front, edging past the expectations of 29 analysts polled by Bloomberg, who had forecast revenue of $4.65 billion.

Parekh was optimistic of the company’s prospects given an improvement in the macroeconomic environment. “My sense is that as and when the macro (environment) changes, when the companies are spending on large technology programs, we are at the best position to start to get that benefit.”

Among Infosys’s peers that have reported first-quarter earnings so far, Tata Consultancy Services Ltd’s revenue grew 1.93% sequentially to $7.5 billion, whereas HCL Technologies Ltd reported a revenue decline of a similar magnitude, to $3.4 billion.

Higher expecations

Infosys had issued its slowest growth guidance at the start of this financial year while reporting its earnings for the January-March quarter. The management now expects revenue growth between 3% and 4% in constant currency terms, implying that the company could end the financial year with $19.3 billion in revenue.

Constant currency eliminates the impact of currency fluctuations.

“Positive revenue growth is a surprise aided by its India business and we expect the company’s growth to continue for the remainder of the year on the back of its deal wins,” said Manik Taneja, executive director for IT services at Axis Capital.

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Much like peer TCS, Infosys’s cash generation from homegrown businesses grew. The company’s revenue from India increased by $46 million sequentially to $146 million, even as the North American market continues to be its biggest revenue pool.

Infosys reported 34 large deal wins during the first quarter, its highest ever. More than half of those were new.

Investors gave a thumbs-up to the company’s results. In pre-market trading on the New York Stock Exchange, Infosys’s shares were up 4% at $21.4 each. The results were declared after market hours in India.

Lower profit, higher attrition

Infosys also announced the completion of its largest-ever acquisition, that of In-Tech, a German engineering, research and development firm, for $480 million. In-Tech had $181 million in revenue last year.

Even though Infosys’s first-quarter net profit fell 20.4% sequentially to $763 million, this was greater than the median estimate of 23 analysts polled by Bloomberg, who had forecast a profit of $748.93 million.

Infosys reported an operating margin of 21.1%, which is 100 basis points higher than the three months through March. A basis point is one-hundredth of a percentage point.

But, in continuation with the trend shown last year, Infosys culled headcount by 1,908 to end the June quarter with 315,332 employees. This reduction comes after the company ended last year with its sharpest decline in headcount.

“The continuous reduction in headcount can prove to be a headwind going ahead,” said Taneja of Axis Capital.

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Parekh did not throw light on the company’s revenue pipeline through generative artificial intelligence, which doomsayers have predicted would automate work done by IT outsourcing companies and hence eat into their revenues.

In contrast, India’s largest IT services company, TCS, announced a Gen AI pipeline of $1.5 billion as of the quarter ended June.

“We are not at this stage of disclosing and quantifying externally our revenue from it. The work we are doing is quite incredible. The focus is really on what enterprises are doing on generative AI,” said Parekh.