BENGALURU: Infosys on Thursday reported the lowest annual revenue growth at 1.4% since it was founded in 1981. The IT giant’s constant currency revenue grew 1.4% in financial year 2023-24, narrowly missing its own forecast, as clients continued to cut spends after a pandemic boom. And in a sign that pain in the IT sector is far from over, Infosys said it expects revenue to grow 1-3% in the current financial year too.
A sequential revenue decline in the March quarter and the tepid management commentary disappointed the street, pushing Infosys’s shares down at least 5% in early trades on the NYSE on Thursday.
The lacklustre revenue forecast for FY25 comes amid heightened uncertainty in the macro-economic environment. This includes the US Fed’s rate cuts being pushed amid high inflation, lower discretionary spending and a political turmoil. The company’s worst growth in the past 15 years was during the global financial crisis in 2009-10 when the figure fell to 3%. It has, however, retained its operating margin guidance at 20-22% for FY25.
“As we look at the start of FY25, we see the discretionary spending and digital transformation work at the same level, and we see the focus on cost efficiency and consolidation continuing. The guidance for FY25 as a band is higher than where we finished last year. While the difference is small, it’s still a little higher from where we finished last year. There are some put and takes in terms of different industries and given the outlook on discretionary spend and digital work remaining the same and more focus on cost efficiency and consolidation, we have created that revenue growth guidance,” said Infosys CEO Salil Parekh. “As we go into the industries, we see, for instance, financial services are expected to see a better outlook this year compared to the past year. Manufacturing will have slower growth,” he added.
Infosys’s performance was flat year-on-year in constant currency, with a sequential decline of 2.2%. For FY24 financial year, its revenue grew to $18.6 billion, a modest 1.4% growth in constant currency compared to the year-ago period. Infosys has narrowed its revenue guidance for last year to between 1.5% and 2%. The banking and financial services sector, a key vertical for Infosys, declined by 8.5% in constant currency, while North America saw a 2.2% decline. In the March quarter, Infosys renegotiated a large contract in financial services leading to an impact of 1 percentage point in the March quarter.
In comparison, TCS reported a revenue growth of 3.4% in constant currency for the 2023-24 financial year, with challenges persisting in North America and the banking and financial services sector. For the quarter ending March, TCS’s revenue grew 2.2% year-on-year in constant currency, with a sequential revenue growth of 1.1% in constant currency.
Infosys’s EBIT margin contracted slightly to 20.7% in the March quarter, compared to 21% in the previous financial year. The company’s large deal total contract value for the quarter was $4.5 billion, a 40% sequential increase, with 44% being net new deals. For the entire fiscal year, large deals amounted to $17.7 billion, with 52% being new deal wins.
Infosys’s headcount declined for the first time in over 20 years, with a reduction of 25,994 employees compared to the previous year, bringing the total to 3.1 lakh employees at the end of FY24.