Indias Infosys cut the upper end of its annual revenue growth forecast after reporting quarterly profit slightly below estimates, hurt by an uncertain demand environment. The Bengaluru-based company now expects full-year revenue growth at 1%-2.5% on a constant currency basis, compared to its prior view of 4%-7.5%. The company maintained EBIT margin guidance at 20-22% for the financial year to March 2024. The outlook dimmed investor expectations for the $245 billion IT services industry, battling weakening client spending amid a global economic slowdown and uncertainty over Britain’s exit from the European Union. The company’s shares fell as much as 10 percent in early Mumbai trading.
The company reported a consolidated net profit of Rs 5,945 crore ($746.46 million), a rise of 7% on a year-on-year basis but below the ET NOW poll estimate of Rs 6,150 crore. Consolidated revenue was up by 1% at Rs 37,933 crore. The company attributed the below-expected performance to a soft-demand environment. “We are continuing to see a challenging macroeconomic environment globally, with clients in critical sectors such as retail and financial services limiting discretionary spending,” CEO Salil Parekh said.
While a robust deal pipeline remained intact, Infosys said the pace of ramp-ups and overall work volume has slowed down. The company added that Clients focus on delivering core digital offerings while deferring projects in the large and complex category.
Despite the challenges, Infosys said it still expects to deliver “an outstanding year” for its customers. The company cited a robust digital revenue base and new wins as signs of positive momentum in the business. It also said it would continue to invest in technology and talent.
Analysts will be looking for commentary on the number of projects that have been delayed due to client discretionary spending delays and an update on the strength of the US dollar. They will look for details on the expected recovery timeline in the US, where Infosys gets about half its revenues. They will also look at the company’s comment on margin, given that back-ended growth guidance is often based on margin-dilutive mega deals.
In the June quarter, Infosys saw its best digital revenue growth in four years. The company benefited from investments made in the last three fiscal years and a shift of budgets from traditional IT services to digital ones. The company saw a strong pick-up in the communications sector. It continued to grow in the financial services vertical as clients looked to leverage the benefits of a multi-year transformational investment. The company also saw strong demand from the insurance sector. The company billed around $581 million for its consulting business, up from $389 million in the year-ago period. The company also saw double-digit growth in the infrastructure services business, which accounted for around 10% of the total revenue. The company also saw solid growth in the consulting and business process services businesses.
