Infosys raises revenue forecast for financial year after strong start

• Company’s focused Generative AI approach for enterprises is finding strong traction with clients.
• Generates highest ever free cash flow at $1.1b and return on equity increases to 33.6%, due to higher payouts to investors.

Infosys, India’s second-largest IT services firm, has topped its quarterly results estimates, showcasing a strong recovery in demand from its mainstay financial services business.

Infosys’ consolidated revenue in the first quarter rose 3.6 per cent to Rs393.15 billion and the net profit also increased by 7.1 per cent to Rs63.68 billion.

Furthermore, Infosys’ operating margin rose by 30 basis points year-on-year to 21.1 per cent, underscoring the company’s ability to maintain its profitability amid the industry’s challenges.

The strong performance is further reflected in the company’s large order bookings, which reached $4.1 billion for the quarter, compared to $4.5 billion in the fourth quarter and $2.3 billion a year ago.

“We had an excellent start to FY25 with strong and broad-based growth, operating margin expansion, robust large deals, and highest ever cash generation,” Salil Parekh, chief executive officer and managing director, said.

Moreover, he said that the focused Generative AI approach for enterprises is finding strong traction with clients. “This is building on our Topaz and Cobalt capabilities” Parekh added.

Banking and financial services excel

In geography-wise performance, only the India region grew by 90 bps to 3.1 percent of the total revenue share. 

Meanwhile, the North American region declined by 70 bps, and accounted for 58.9 per cent of the total revenue share while Europe’s share declined by 20 bps to 28.4 from 28.6 per cent.

The performance has prompted the company to raise its revenue forecast for the financial year, further bolstering the optimism surrounding the industry.

The achievement is particularly noteworthy as it aligns with the positive trends observed across the IT services sector, with industry leader Tata Consultancy Services and smaller rival HCLTech also reporting strong quarterly results.

The recovery in the IT services industry, which has been grappling with sluggish demand in the aftermath of the pandemic-induced boom, is a testament to the sector’s resilience and adaptability.

Infosys’ impressive performance is particularly evident in its banking and financial services segment, which had experienced a decline for four consecutive quarters but has now reported a revenue rise of 0.3 per cent.

The turnaround signals a renewed confidence among IT clients, who had previously cut their spending on non-essential projects due to economic uncertainty and higher interest rates.

Shift in market dynamics

The industry’s outlook is further buoyed by the expectation that the US Federal Reserve’s interest rate cuts and the upcoming US election results will contribute to a more favourable business environment.

The shift in market dynamics is expected to drive resurgence in IT spending, as clients seek to capitalise on the opportunities presented by the changing economic landscape.

 “Our relentless drive on cost optimisation through Project Maximus, a comprehensive margin expansion programme, is reflected in the all-round improvement in key operating metrics leading to One per cent growth in operating margin in first quarter,” chief financial officer Jayesh Sanghrajka said.

Sanghrajka added that the company has generated its highest ever free cash flow at $1.1 billion and return on equity increased to 33.6 per cent, due to higher payouts to investors.

In vertical play, financial services were the only major one to grow, increasing by 110 bps sequentially to 27.5 per cent from 26.4 per cent.

On the other hand, retail, communication, energy, utilities, resources & services, and hi-tech vertical revenue share decreased. The manufacturing sector remained flat for the quarter.