Infosys' ADR falls 6.5% on Nasdaq as IT firm trims revenue outlook for FY24

Indian shareholders of IT major Infosys Ltd might have to brace for a red day on Friday as its American Depositary Receipts (ADRs) were trading 6.5% lower on Nasdaq on Thursday as it trimmed its FY24 guidance despite in-line Q2 results. 

AT 1100 hours New York Time, Infosys' ADRs were trading 6.5% lower at $16.45. 

Infosys had cut the upper end of its annual revenue forecast on Thursday, raising concerns about near-term demand for services provided by the $245-billion Indian information technology sector.

The No.2 Indian software-services exporter said it now sees full-year revenue growth at 1%-2.5% excluding foreign exchange volatility, versus a prior view of 1%-3.5%.

Infosys on Thursday posted a 3.1% rise in consolidated net profit to Rs 6,215 crore for the September 2023 quarter.

On the positive side, the company clinched the highest-ever large and mega deal wins with a total contract value of USD 7.7 billion and announced that wage hikes will be rolled out from November 1.

Infosys, however, cautioned that discretionary projects and large transformation programmes have reduced significantly amid uncertain macro-environment.

Infosys – which competes in the IT services market with TCS, Wipro, HCL Technologies and others – saw its revenue rise 6.7% to Rs 38,994 crore for the just-ended September quarter.

“On guidance, we are seeing discretionary projects and large transformation programmes have reduced significantly, and we are seeing decision-making continues to be slow. As we have looked at this quarter, the volumes are still under constraint and keeping that in mind, we have given our guidance for the full year,” Infosys CEO and MD Salil Parekh said at a briefing.

Telecom, hi-tech, financial services (payments, investment banking), and retail are among sectors that are seeing weak demand, Parekh said, adding that manufacturing and life science space continue to do well.

“On the digital programmes and the discretionary work, there is continuous attention by clients to reduce or stop them,” he said.

On the flip side, there is a “tremendous interest” in cost, efficiency, and automation-related projects, he said, adding that this is the space where Infosys has a huge advantage in the market and is gaining market share by winning large deals.

The mega deals are structured in a way that the scaling up is expected by the end of the year and beyond that, he pointed out.

Wage hikes have been announced and will be rolled out from November 1 across all employees, Infosys CFO Nilanjan Roy said.

Infosys headcount fell by 7,530 to 3,28,764 as of September 30, 2023, against 3,36,294 in the June quarter.

Roy said that Infosys has a significant fresher bench and headroom for increasing utilisation, and hence it “is not going to campuses as yet”.

“Last year, we hired 50,000 freshers and hired ahead of demand…we still have a significant fresher bench… we are, of course, training them on Gen AI etc, but we still have way to go on utilisation, and at the moment are not going to campuses as yet…we will monitor this every quarter looking at our future projections,” he said.

That said, the company will honour all the offers made, onboarding them as projects come up.

Infosys declared an interim dividend of Rs 18 per equity share carrying a face value of Rs 5 each and has fixed October 25, 2023, as the record date for the interim dividend and November 6, 2023, as the payout date.

“We had our highest large deals value at $7.7 billion in Q2 spread across all verticals and geographies. This, in an uncertain macro-environment, is a testament to our ability to pivot and stay relevant to the evolving client needs, by delivering the benefits of transformation as well as productivity and cost savings at scale,” Parekh said.

Seen sequentially, the revenue was up 2.8%, while net profit (before minority interest) was 4.5% higher than the June quarter. Operating margin for the quarter increased by 40 basis points sequentially to 21.2%. Infosys has retained its operating margin guidance at 20-22%.

“Strong H1 performance with significant large deal wins, builds a solid foundation for the future. The growing adoption of our Generative AI offering, Topaz, is helping us deliver consistent value and expand market share,” Parekh added.

The Q2 tech earnings season began on Wednesday with larger rival Tata Consultancy Services (TCS) reporting a weak Q1 scorecard.

The country’s largest software exporter reported an 8.7% increase in September quarter net profit to Rs 11,342 crore, missing street estimates.

In its management commentary – a key monitorable for the market – TCS made it clear that the headwinds for the IT sector continue amid a sluggish economic climate.

TCS revenue increased 7.9% in the September quarter to Rs 59,692 crore but was up only marginally compared to Rs 59,381 crore in the preceding June quarter.

As it is, ahead of the Q2 results, analysts tracking the sector had anticipated that a large Indian IT services pack will report a “muted” sequential show in a traditionally strong second quarter, as macroeconomic challenges continue to weigh on global discretionary spending.

With inputs from PTI