Infosys Shares Decline as Revenue Guidance Falls Short of Expectations

Infosys, India's second-largest IT services company, saw its shares trade decline by up to 2.9% on Friday after the company forecast annual revenue below market expectations. The subdued revenue guidance raised doubts over predictions of an early recovery in the sector.

For the fiscal year 2025, Infosys forecast revenue growth between 1% and 3% in constant currency, falling short of analysts' expectations. The company cited macroeconomic uncertainties and a cautious approach from clients as the reasons for the lower revenue outlook. Infosys CEO Salil Parekh noted a slower outlook in the U.S. market due to interest rate fluctuations but observed good growth in Europe.

The Indian IT sector has been struggling in recent quarters as clients cut spending on non-essential projects due to inflationary pressures, leading to tougher contract terms and a slowdown in industry growth. Infosys reported fourth-quarter revenue of $4.56 billion, a 0.2% increase on a reported basis and flat on a constant currency basis compared to the previous year. The revenue fell below analysts' estimates of $4.62 billion.

Despite the revenue miss, Infosys' consolidated profit rose 30% to 79.69 billion rupees ($969 million). The company secured a significant deal worth $4.5 billion in the quarter, but its operating margin declined by 90 basis points to 20.1%. Infosys ended the quarter with 317,240 employees, a reduction of 25,994 from the previous year, marking the first such decline in at least 23 years.

Why this matters: Infosys' subdued revenue guidance and the broader challenges faced by the Indian IT industry reflect the impact of global economic uncertainties on the sector. The slowdown in client spending and the cautious approach towards new projects raise concerns about the near-term growth prospects for IT services companies.

Analysts termed Infosys' quarterly performance and outlook as 'disappointing', with recovery likely to be more modest than earlier expected due to sluggish large segments, existing business leakages, and weaker discretionary demand. At least 14 analysts cut their target price on Infosys after its results, net profit rate, with the median target price falling from 1,720 rupees to 1,650 rupees. Infosys CFO Jayesh Sanghrajka attributed the headcount reduction to higher utilization and lower attrition, stating, "Our headcount declined by 25,994 in FY24, the first such decline in at least 23 years."

Key Takeaways

• Infosys Q4 revenue missed estimates, shares fell up to 2.9%
• Infosys forecasts FY25 revenue growth of 1-3%, below expectations
• Infosys cites macro uncertainties, client caution for lower outlook
• Infosys reports 30% rise in Q4 profit, but 90 bps drop in margin
• Infosys sees first headcount decline in 23 years, citing higher utilization