Infosys Q4 net profit jumps 30%; company buys German tech firm for Rs 450 million

Infosys Q4 net profit jumps 30%; company buys German tech firm for Rs 450 million

Bengaluru|New Delhi: Infosys, which has the highest Nifty weighting among locally listed technology companies, Thursday said fourth-quarter net profit climbed 30% on gains in non-core income, beating D-Street estimates. Revenue guidance for FY25, a key monitorable for investors, remained conspicuously circumspect, although India’s outsourcing bellwether announced its biggest M&A deal in history, commiting nearly about half a billion dollars.

Profit climbed to ₹7,969 crore in the March quarter, beating ET’s poll of ₹6,103 crore. Other income buttressed the bottom-line through what turned out to be a tough year for revenue expansion, which hit the lowest pace in a decade. Headcount shrank by about 26,000, again a rarity for India’s technology bellwether.

Revenue at ₹37,923 crore in the fourth quarter declined 2.3% sequentially and was up by merely a percentage point (1.2%) on a year-on-year basis. The company’s operating margin came at 20.1%, a decline of 40 bps (1.9%) sequentially and decline of 90 bps (4.2%) y-o-y.

The American-listed shares of Infosys slumped 3% to $16.45 apiece late evening India time.

Infosys’ new chief financial officer Jayesh Sanghrajka told analysts after the earnings that the company rescoped a financial services deal, causing an impact of more than one percentage point on revenues. “While part of the work got rescoped, over 85% of the contract is still with us,” he said. Sanghrajka clarified that this rescoping and renegotiation “has nothing to do with gen AI.”

Infosys gave a FY25 revenue guidance of 1-3% even as it won “record deals” totalling $17.7 billion in FY24. Chief executive Salil Parekh said some of the gains from the deal wins have been baked into the revenue guidance. It expects operating margin to be in the range of 20-22%.

Parekh maintained a cautionary tone for the overall demand environment and said that only some verticals such as banking and financial services are expected to be better in FY25 while others like manufacturing are expected to be “slow”.

Infosys recommended a final dividend of ₹20 per equity share, and additionally a special dividend of ₹8 per equity share.

Bottoming Out?

“Infosys experienced a slight decline in Q4 revenue, attributed to weakness in discretionary spending and customers taking more time to make purchasing decisions,” said Biswajit Maity, senior principal analyst, Gartner. “Its innovative approach, extensive industry partnerships, competitive pricing, and flexibility position it as a key player in the ecosystem.”

Infosys announced that it is acquiring in-tech, an engineering R&D services provider focused on the German automotive industry. The acquisition is pegged at ₹450million (about $480 million), and the consideration includes upfront and earnouts, excluding management incentives, and retention bonus.

“This strategic investment further strengthens Infosys’ engineering R&D capabilities and reaffirms its continued commitment to global clients to navigate their digital engineering journey,” said the company in a statement.

Infosys in 2012 acquired Swiss technology consulting firm Lodestone Holding for $350 million. And in 2019, it acquired Irish contact centre Eishtec for an undisclosed amount.

Indian IT companies have been acquisition shy as compared with their global peers, with the exception of Wipro that bought a dozen companies under its former CEO Thierry Delaporte. Companies, however, have found it hard to integrate some of the acquisitions. In 2015, Infosys acquired Panaya for $200 million, but failure to capture announced synergies was often blamed for the ouster of its then CEO, Vishal Sikka.

Analysts said, however, that the guidance is not sacrosanct. Infosys last fiscal lowered its revenue guidance three times, but the margin guidance has remained in the 20% ballpark through last fiscal year and FY25.

“Consistent with the objective of giving high and predictable returns to shareholders, the board has approved the capital allocation policy under which the company expects to return 85% over the next 5 years and progressively increase annual dividend per share,” said the CFO.

Pain PointsNorth America continues to see negative growth for the company, while Europe is doing better in line with its industry peers. While revenue from North America constituted about 59.6% in the just concluded quarter, Europe gave about 28.6% in the same period.

Two revenue streams, financial services and retail, saw shrinkages of 8.4% and 3%, respectively, in the number of clients.

Infosys ended FY24 with 25,994 fewer employees compared with FY23. This is the first time the company has reported a full-year dip in headcount in over two decades. It concluded the fiscal year with a total employee count of 317,240.

“Our hiring model has changed significantly in the last few quarters… We are now on a more agile model of campus hiring,” said Sanghrajka. Employee utilisation is at 82% now, up from 77% at the start of the year.

Infosys also disclosed favourable income tax rulings that reduced contingent liabilities and reversed earlier liabilities.

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