Infosys hosted a conference call on October 17, 2024. In the conference call the company was represented by Mr Salil Parikh CEO & MD and Mr Jayesh Sanghrajka-CFO.

Key takeaways of the call

Q2FY2025

The company had strong performance in Q2FY2025 with robust and broad based growth, stable operating margins, strong cash generation, strong large deals and increase in employee head count.

Revenue for the quarter stood at US $ 4894 million up 3.1% QoQ and 3.3% YoY in CC terms. This includes benefit of acquisition.

Financial services grew by 2%, Manufacturing grew in double digits and EURS 5.8% QoQ . The company witnessed growth in all geographies in Q2FY2025 on a sequential basis. Europe had a strong growth in Q2FY2025 and now constitutes 30% of the total revenues.

Inorganic contribution to revenue growth was 0.8% QoQ which contributed to Europe manufacturing.

BFSI vertical witnessed discretionary spending uptick in US in capital market, mortgages and cards.

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Margin: EBIT margin for the quarter stood stable at 21.1% in Q2FY2025. This was despite higher variable pay and acquisition impact.

Margin Walk through: The company had tailwind of 80 bps due to project maximus and  10 bps due to currency movement which was offset by 30 bps(amortization of intangible asset)  on account of acquisition and 60 bps impact due to higher variable pay.

Project maximus was main focus area in Q2FY2025 resulting in improved operating metrics including, utilization, realization and optimization of sub-con cost.

Effective tax Rate: Effective tax rate stood at 29.6% for the quarter and 29.5% for H1FY2025. The company expects ETR to be in the range of 29-30%.

Human Resource:

LTM attrition was stable at 12.9% in Q2FY2025.

Head count the company’s total workforce stood at 317788, an increase of  decrease of 2456 employees compared to Q1FY2025.

Utilisation stood at 85.9% excluding trainees in Q2FY2025 as against 85.3% excluding trainees in Q1FY2025.

The company plans to hire 15000-20000 freshers in FY2025 through a mix of campus and off campus based on the demand environment.

The company will launch its employee compensation in 2 phases starting January1, 2025 and April 1,2025.

Order book:

The company signed 21 large deals to the tune of TCV US $2.4 billion in Q2FY2025 with 41% being net new.

Vertcial wise 7 deals  were signed in financial services, 3 each in communication, manufacturing and others, 2 in retail and 1 each in EURS, Hitech and health care. Region wise 12 deals were signed in US , 5 in Europe 3 in India and 1 in RoW.

Overall pipe line remains strong. The company witnessed double digit growth in pip-line on a QoQ basis for deals with less than US $ 50 million.

Pipeline for large deals are strong. Gen AI is part of all large programs. There is no change in the behaviour in large deal time line.

Guidance: Revenue growth guidance for FY2025 revised upwards to 3.75-4.5% from earlier 3-4% in constant currency terms.

EBIT margin guidance for the FY2025 maintained in the range of 20-22%.

Reasons for increase in revenue growth guidance: The company had a strong performance in Q2 which was broad based, continued growth in volumes across verticals and particularly BFSI and increase in small deal pipe line on a QoQ basis which are less than US $ 50 million.

The company has considered furloughs in Q3 and lower calendar working days in Q3 and Q4 for revenue growth guidance.

Outlook:

BFSI continues to witness increase in discretionary spending increase in US in capital markets, mortgages and cards and payments.

The company has witnessed slowness in automotive sector in Europe. Apart from these verticals demand environment remains stable with clients prioritising cost take out over discretionary spending.

The uptick continued in BFSI with cost optimization and outsourcing and transformation opportunities. Deals wins were strong with small deals pipe line also being strong providing visibility for future growth.

Retail vertical continues to be impacted by economic and political uncertainty. Cost take out, efficiency and consolidation are key priorities for clients. Consumer spends in the upcoming holiday season will be the key lead indictor.

Communication vertical out look is challenging with clients primarily focussed on cost reduction and making their investment profitable. Discretionary spend for OEM continues to be under pressure. Cost optimization and vendor consolidation are the top priority for clients. Growth in FY2025 will be driven by large deal wins.

In EURS geopolitical concern and high interest rate influence spending patterns. Clients focus is on cost optimization initiatives. The company witnessed strong growth in energy sector.

Growth in manufacturing was strong this was partially due to In-tech acquisition. Europe automotive sector is witnessing challenges. Discretionary spend remains under pressure. The company is witnessing increase benefits of vendor consolidation. The company is witnessing opportunities around supply chain optimization, smart factory, and connected devices across various sub verticals.

Most hi-tech clients remain cautious due to geo political tension.  Discretionary spend and new project starts are slow due to slower cash conversion cycle.

Margin: Levers for margin expansion are across five pillars of project maximus including sub contract optimization and pricing. Head winds include increase in compensation in phased manner.

Dividend: The board has approved interim dividend of Rs 21 per share.

Management commentary:

Commenting on the performance Mr Salil Parekh, CEO & MD said: “We had strong growth of 3.1% quarter-on-quarter in constant current in Q2. The growth was broad based with good momentum in financial services. This stems from our strength in industry expertise, market leading capabilities in cloud with Cobalt and generative AI with Topaz, resulting in growing client preference to partner with us.

He addes “Our large deals at $2.4 billion in Q2 reflect our differentiated position. I am grateful to our employees for their unwavering commitment to our client as we further strengthen our market leadership”

Mr Jayesh Sanghrajka –CFO said: “We continue to focus on accelerating revenue growth with a sharp focus on margin performance. Operating margins for the quarter was at 21.1%, driven by continued benefits from value-based pricing and utilization despite higher employee payouts. Our focus on cash generation resulted in another quarter of over 100% Free Cash Flow conversion to net profits”.

He further added “The Board announced an interim dividend of `21 per share, 16.7% increase from last year”