Infosys shares drop 3% after revenue guidance misses expectations

Shares of Infosys Ltd fell as much as 3% on Friday after India’s second-largest software services firm gave a revenue growth guidance of 1-3% for the ongoing fiscal, missing analyst expectations.

The IT stock opened lower at ₹1,387 against its previous closing price of ₹1,420. In opening trade, Infosys shares dropped to ₹1,379.70 on the BSE.

In a post-earnings conference call, Infosys CEO Salil Parekh says the IT major is seeing good traction in large deals but digital and discretionary spending is still a bit slower.

For FY24, Infosys narrowed its revenue growth guidance to 1.5%-2% from 1%-2.5% projected last year. Infosys has revised its revenue growth guidance several times over the past year. The IT firm first projected its revenue guidance to be in the range of 4-7% for FY24. On July 20, 2023, Infosys scaled down its guidance between 1% and 3.5% for the ongoing financial year. The company further slashed the upped-end of its revenue growth guidance to 2.5% in October last year.

Net profit of Infosys rose 30% year-on-year to ₹7,969 crore for the quarter ended March 31, 2024 compared with ₹6,128 crore in the year-ago quarter. Revenue of India’s second-largest software services provider rose 1.3% to ₹37,923 crore as against ₹37,441 crore in the corresponding quarter last year.

Infosys also declared a final dividend of ₹20 per equity share and a special dividend of ₹8 per share. Operating margin for the quarter was 20.1%

“We delivered the highest ever large deal value in the financial year 2024. This reflects the strong trust clients have in us. Our capabilities in Generative AI continue to expand,” says Parekh.

“Consistent with the objective of giving high and predictable returns to shareholders, the Board has approved the capital allocation policy under which the company expects to return 85% over the next 5 years and progressively increase annual Dividend Per Share,” says Jayesh Sanghrajka, CFO, Infosys.

Infosys gave an operating margin guidance of 20-22%.

“Operating margin expansion in the medium-term and improving cash generation continue to remain our priorities underpinned by early success in Project Maximus,” Sanghrajka adds.

North America contributed 59.6% to Infosys’ revenues during the March quarter while Europe accounted for 28.6% of revenues.

Infosys reported a drop in staff headcount for the fifth straight quarter. The software major ended FY24 with 317,240 employees compared with 322,663 at the end of December 2023 and 343,234 at the end of March 2023.

Infosys’ free cash flow was strong at $2.8 billion, an increase of 13.7% over FY23. Large deal TCV for FY24 was the highest ever at $17.7 billion, with 52% being net new. 

The software giant announced an agreement to acquire in-tech, an engineering R&D services provider focused on the German automotive industry, for 450 million euros. This strategic investment further strengthens Infosys’ Engineering R&D capabilities and reaffirms its continued commitment to global clients to navigate their digital engineering journey, the company says.