Infosys reports a sequential decline in net profit, but increases revenue & margin guidance for FY23

• India’s second largest IT services company Infosys reported a 5.7% sequential decline in its net profit.
• The company blamed wage hikes for this – stating that it was in double digits for some of its employees.
• Despite this, Infosys’ employee attrition rate worsened when compared to the March quarter.
• The total contract value of its large deal wins stood at $1.7 billion.

India’s second largest IT services company Infosys today reported a 5.7% sequential decline in its net profit to ₹5,360 crore in the June quarter, as against ₹5,686 crore in the previous quarter. The management said that the decline was largely on account of wage hikes.

Revenues witnessed a growth of 6.8% sequentially to ₹34,470 crore in the same period. Constant currency revenue growth stood at 5.5% sequentially and 21.4% year-on-year. Despite several macro headwinds, the company said that its deal pipeline remained strong.

Despite a weak sequential performance, burdened by supply side challenges and high travel costs, Infosys increased the revenue guidance for FY23 to 14-16%, up from the previous guidance of 13-15%.

“We continue to gain market share and see a significant pipeline driven by our Cobalt cloud capabilities and differentiated digital value proposition,” said Infosys CEO and MD Salil Parekh, sounding a bullish tone for the rest of FY23.

Infosys also noted that it closed large deals at a total contract value of $1.7 billion in the June quarter. However, the company revealed its $100 million+ clients remained at 38 – same as the March quarter.

Most of the additions were in the $1 million+ range, which increased to 877 from 853 in the previous quarter.

Here’s Infosys’ latest earnings at a glance:


Source: Company reports

Infosys’ margins have been under stress, just like the rest of the IT industry – its net margin in the June quarter fell both sequentially as well as on a year-on-year basis.

Infosys expects wage hikes to help reduce attrition

Chief Financial Officer Nilanjan Roy, said: “We are fueling the strong growth momentum with strategic investments in talent through hiring and competitive compensation revisions. While this will impact margins in the immediate term, it is expected to reduce attrition levels and position us well for future growth. We continue to optimize various cost levers to drive efficiency in operations.”

A lot of the pressure on the margins comes from employee expenses, which stood at 53.2% of the company’s total revenue in the June quarter – Infosys spent ₹532 for each ₹1,000 it earned during the first three months of FY23.

These wages have gone up marginally sequentially, from 51.6% in the March quarter, while the year-on-year increase looks better from 54.6% last year.

The company’s attrition rate worsened marginally in the last 12 months to 28.4% from 27.7% in the March quarter. Its total headcount stood at 3,35,186, up from 3,14,015 in the previous quarter – implying a net addition of 21,171 employees on its roster.,

The declining Rupee is expected to help Infosys’ bottomline, according to a report by Kotak Institutional Equities.

North America remains Infosys’ bread and butter, with a contribution of over 60% to the company’s total revenue. India remains a marginal market for the IT services giant. The company said it continues to see strong demand across geographies, especially in the US.

On a sequential basis, the Indian business shrunk nearly 19%, and despite the recession concerns in the US, the North American market’s share grew marginally.


Source: Company reports

What should come as a relief for the company is the growth in key segments like financial services, energy and retail. Communication and manufacturing segments declined the most, mirroring the impact of inflation on these industries.


Source: Company reports

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