Captain Speaks     

Published: November 30, 2023
Updated: November 30, 2023

Infosys

‘Large deal wins marked Q2FY24’

the highest large deals worth $ 7.7 billion spread across all verticals and geographies is a testament to our ability to pivot and stay relevant to client needs by delivering the benefits of transformation as well as productivity and cost savings at scale, a strong H1 performance with significant large wins for the future. The growing adoption of our generative Artificial Intelligence offering – Topaz – is helping us deliver consistent value and expand marketshare.”

Referring to the performance of the business segments, Mr Parekh revealed that revenue from financial services and communication declined 7.3% and 4.3% YoY respectively in CC terms. However, revenues from life sciences, manufacturing and retail rose 18.4%, 12.6% and 9.2% in CC terms respectively. Among the client geography, revenue from Europe grew 5.4% YoY and from India grew 2.6% in CC terms. Revenue from North America grew 1% YoY in CC terms. As far as margins are concerned, EBIT margin for Q2 was 21.2%, an increase of 40 bps sequentially.

The margin walk was as follows: The company gained 0.5% due to cost optimization, including utilization, 0.3% from revenue one-timers and 0.1% from currency depreciation, which was offset by 0.5% due to third-party cost. The company has not seen any margin erosion due to large deals, and will work towards optimizing margins despite pressure, he said.

GENERATIVE A.I.

According to Mr. Parekh, the adoption of Topaz, a generative AI capability, is helping the company deliver value and increase marketshare. The company is currently working on 90 Generative AI programs and is working on both proprietary and large open-source language models. It will continue to make investments in Generative AI and has trained 67,000 employees in Generative AI. As regards client matrix, he said it remained strong with the number of $ 50 million clients increasing to 80 and $ 100 million clients increasing to 39, indicating the company’s ability to mine clients with multiple relevant services.

According to him, the company is providing a salary hike effective November 1, 2023 to its employees. The head count reduced by 7,530 on a QoQ basis. Attrition declined further to 14.6% while quarterly annualized attrition remained flat sequentially. Utilization, excluding trainees, has increased from 81.1% in Q1FY2024 to 81.8% in Q2 FY2024. The company believes that there is further room for further optimization. Referring to deals, he said that large deal wins were highest for the company with a TCV of $ 7.7 billion, of which 48% was net new. Consequently, the large deal TCV stood at $ 10 billion. In Q2, the company signed 4 mega deals, which does not include the recent MoU signed for $ 1.5 billion. With large deal wins, the company is gaining marketshare in the areas of cost, efficiency, automation and artificial intelligence. The large deal wins help the company build a strong foundation for the future.

The company has a clear focus on client relevance as the changed economic environment helped the company move from transformation projects and also deliver productivity benefits and cost savings at scale

LARGE DEALS

The company signed 21 large deals in Q2, including 4 mega deals. Of the 21 large deals, 6 large deals were in retail, 5 in manufacturing, 4 in telecom, 3 in financial services, 2 in life sciences and 1 in the energy,utilities,resources and services vertical. Regionwise, the company signed 12 in America, 8 in Europe and 1 in RoW. The pipeline continues to be strong, with many deals in cost take-out, efficiency improvement and vendor consolidation.

As regards guidance, Mr Parekh said that FY24 revenue growth guidance was revised to 1.0%-2.5% in constant currency and operating margin guidance was retained at 20%-22%. The outlook continues to remain uncertain in financial services, in areas like mortgages, asset management, investment banking , cards and payments, due to spend reduction by some large cli The company remains cautiously optimistic in the medium term due to partial movement to the cloud for real time impact and analytics. Challenges in the communication sector continue, and coupled with increasing OPEX pressures, cost inflation, high interest rates and demand imbalances are creating near term uncertainties. Delays in decision-making continue. Energy, utilities, resources and services clients are taking a conservative approach towards discretionary spend and this is expected to continue throughout the year.

CLIENT CONSTRAINTS

Despite a volatile external environment, manufacturing continues to grow in double digits. Despite pressure on discretionary spend continuing, there are opportunities in infra, transformation, cost optimization, etc, which is resulting in a stronger pipeline. In the retail segment, the budget continues to remain tight due to a focus on budget consolidation, cost and efficiency. Softness in volumes and discretionary spend continues. There is no change with respect to client conversation. A lot of constraints are witnessed on transformation projects or discretionary spends. Clients are focussing more on cost and efficiency projects. Growth guidance is being reduced for FY2024 due to Q3 being a seasonally soft quarter for the company due to holidays

Commenting on the company’s performance, Mr Parekh said, “We had our highest large deals value at $7.7 billion in Q2, spread across all verticals and geographies. This, in an uncertain macro-environment, is a testament to our ability to pivot and stay relevant to the evolving client needs, by delivering the benefits of transformation as well as productivity and cost savings at scale.” He added, “The strong H1 performance with significant large deal wins builds a solid foundation for the future. The growing adoption of our Generative AI offering, Topaz, is helping us deliver consistent value and expand marketshare.”

Nilanjan Roy, CFO, said, “Our Q2 operating margin of 21.2% demonstrates the early benefits of the recently unveiled margin improvement plan and is a clear reflection of our ability to continuously identify opportunities for improving operational efficiencies”.