Infosys raises outlook amid signs of slowdown, as cloud and automation propel both digital and core

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Infosys yesterday raised its revenue outlook for FY23 citing strong growth momentum from the first nine of the fiscal year and a record order book, even as a recession looms large in its biggest markets. The company’s numbers beat street expectations and CEO Salil Parekh said its strong capabilities in cloud technologies and automation had helped Infosys win the highest number of large contracts in a quarter in the company’s history. He also flagged signs of an economic slowdown and delays in decision-making among clients in investment banking, telecom, hi-tech and retail.

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Infosys yesterday raised its revenue outlook citing strong growth momentum from the first nine months of the current fiscal year and a record order book, even as a recession looms large in its biggest markets.

The company beat analysts’ expectations for its fiscal third-quarter revenues and profit. Revenue for the three months ended December 31, rose 2.4 percent from the previous quarter in constant-currency terms, which eliminates the effect of currency rate variations.

Sales rose 13.7 percent to $4.66 billion for the December quarter versus $4.25 billion for the same quarter a year ago, Infosys said in a statement.

In comparison, analysts at Kotak Securities, for example, were expecting Infosys to turn in sequential growth of 1.1 percent and a year-on-year increase of 11.6 percent in constant currency terms.

“This is a seasonally weak quarter for us and amid a changing global economy,” CEO Salil Parekh told reporters in a conference in Bengaluru on Jan. 12. “We continue to take market share. We continue to benefit from consolidation.” Growth was broad-based with most industries and geographies growing in double digits in constant currency terms, Parekh added.

The company reported its large-deals order book at $3.3 billion, the highest in eight quarters, with 32 large deals. “This is the largest number of large deals in a quarter in our history,” CEO Parekh said. More than a third of the large deals won were “net new,” at 36 percent, he said.

“Driven by the growth of 17.8 percent in constant currency for the first nine months of FY23 and the strong large deal value for Q3,” the company is increasing its revenue growth guidance from the October range of 15-16 percent to 16-16.5 percent for the full financial year.

“This is despite the changing global conditions,” Parekh said. The company is retaining its operating margin guidance for FY 23 at 21-22 percent. For Q3, Infosys reported operating margins at 21.5, which was within the range CFO Nilanjan Roy had projected in October, but slightly below street expectations. He reiterated his expectation that Infosys will end the year with margins closer to the lower end of its estimate.

Staff churn, an important metric in the services business, came down strongly during the quarter. Voluntary quarterly annualized attrition continues to decline. It was reduced by six percentage points sequentially to well below 20 percent for this quarter, CEO Parekh said.

CEO Salil Parekh also pointed out that the coming quarters will be tough. “While we are encouraged by the immense confidence and trust our clients have in us, the signs around are showing a slowing global economy,” he said.

Some areas, such as mortgages and investment banking in the financial services industry, telecom, hi-tech and retail are more impacted and that is leading to delays in decision-making and uncertainty in spending in these areas, he said.