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Infosys Ltd started FY25 with a bang. Its order books were overflowing with new deals as it reported its highest quarterly deal wins in the three months through June 2024. Deal wins followed even in the following quarter and at one point, the Street predicted the country’s second-largest information technology (IT) services firm to grow faster than its larger peer, Tata Consultancy Services Ltd, in the 12 months through March 2025.
However, seasonality played spoilsport in the third quarter, and the company did not have any mega deals—those above $1 billion in total contract value—to boast about. The going got tougher as US president Donald imposed tariffs on all imports on 2 April, and announced a 90-day pause on them just a week later. This reversal in stance has put the world on tenterhooks as clients of Infosys, which are among the world’s largest companies, are now uncertain of the macroeconomic environment.
Such concerns have stoked fears in the minds of analysts, who are now worried if the world is at the cusp of a recession. Recession would bad news for IT service providers because Fortune 500 companies holding back their tech spending translates to lower revenue for the country’s software outsourcers. For the Bengaluru-based Infosys, macroeconomic concerns along with an exodus of top-level talent in the past 18-24 months will be questions its chief executive Salil Parekh, currently in his second 5-year second term that runs till March 2027, will have to address.
Infosys shares have fallen 24% between the start of the year and the closing hours of Tuesday, 15 April. On Tuesday, the company's stock settled 1.2% higher at 1,427.
25 on the BSE. In this backdrop, looks at five talking points the company’s management would throw light on, when it announces its full-year earnings on Thursday. Revenue In the first nine months of the fiscal (April-December 2024), Infosys' revenue grew 3.
9% in constant currency terms. The company kept raising its full-year guidance in each quarter since the start of the fiscal year and it last raised its full-year growth guidance to 5% at best in constant currency terms in January 2025. Constant currency does not take currency fluctuations into account.
This growth now appears at risk. Why? Tata Consultancy Services Ltd's chief executive K. Krithivasan said the company witnessed decision-making delays and certain ramp-down from clients because of macroeconomic uncertainty, in his post-earnings media interaction last week.
For investors, if Infosys is able to keep up with its earlier guidance, it will be a positive. However, a slowdown is on the horizon following Trump’s tariff fiasco. At least one brokerage tempered its revenue expectations from the US, Infosys' biggest market.
“Infosys has among the highest exposure to the US market, which in our view has been a positive since the beginning of this year; however admittedly, uncertainty and volatility have increased in the past few weeks," said HSBC analysts Yogesh Aggarwal, Prateek Maheshwari, and Sagar Desai, in a note dated 1 April. Infosys gets 58.4%, or $10.
8 billion of its revenue from North America, the highest amongst its top five peers. Any uncertainty in the region might dent its revenue from the region. Management Commentary Infosys, under Parekh, is a playbook of the old, that is under-promise and over-deliver.
In simple words, it is conservative in giving guidance. This can be explained by how Infosys has always upped its guidance to a level that it considers achievable and outperformed its own estimates. Infosys could be a much better barometer of the demand outlook in the industry and to understand the macroeconomic challenges, simply because the company never over-promises and under delivers.
In contrast, TCS does not give revenue guidance. Moreover, TCS at the end of last fiscal said that FY25 would be better than FY24, but ended up reporting a slower 3.8% full-year growth at the end of March 2025 as compared with the 4.
1% in FY24. Infosys has made a downward revision to its revenue guidance only four times in the last 19 quarters, according to a Mint review. Amid global uncertainty, forward-looking commentary from Parekh, who is frugal with words, would be tracked by investors even as Infosys’ clients are expected to pull back their tech spending.
Order Book Infosys bagged large orders worth $4.1 billion in the first three months of FY25 with 34 deal wins, its highest in a quarter. Any deal with a total contract value of $30 million and above is considered a large deal at Infosys.
The company's large deal value in the next six months totalled $4.9 billion, just a shade more than it got in the first quarter. Its relatively weaker order book in the last two quarters translates into a large deal value of $9 billion in the first nine months of the fiscal, down 32% year-on-year.
This figure is worrying because slower deal wins by Infosys could suggest a slower growth in the ongoing financial year. Operating Margins Mumbai-based TCS may not have given a wage hike this quarter but promotion-related expenses have hurt TCS’s operating margins by 100 bps in the fourth quarter. Overall, TCS’s margins in the full year declined 30 basis points to 24.
3%. One basis point is a hundredth of a percentage point. Infosys, on the other hand, has split annual increments between two quarters.
Whether it will absorb half of the hike-related expenses in the three months through March 2025 and the remaining in the first quarter of FY26, or all at once in the fourth quarter of FY25, remains to be seen. It improved margins by 20 basis points sequentially to 21.3% at the end of December 2024.
A second brokerage expects margins to take a hit. “We expect margins to remain largely stable for most of our coverage companies except for Infosys and HCLT where there are wage hikes and seasonal weakness," said Nirmal Bang analysts Vaibhav Chechani and Suket Kothari, in a note dated 7 April. Infosys was one of the two companies of the country’s top five to give wage hikes to employees in two tranches.
India's third-largest IT services provider HCL Technologies Ltd was the other. Headcount Infosys cut headcount by 25,994 employees in FY24, the highest among its top five peers. Its revenue growth in this time was 1.
9%, a record low. This year, it has hired 6,189 employees in the nine months through December 2024, the most among the top five. Its revenue grew 3.
9% during the period, much better than what it ended last year with. Clearly, there is a link between headcount and revenue growth. The company had also laid off at least 300 freshers from its Mysore campus in February, many of whom were onboarded after two years of receiving their offer letter.
In this context, the company’s commentary on its hiring plans and overall headcount will be tracked. Lower demand for IT services leads to low need for employees and therefore, lesser new hires..
