Release Date: July 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Infosys Ltd (INFY, Financial) reported a strong Q1 FY25 performance with 3.6% sequential revenue growth and 2.5% year-on-year growth in constant currency terms.
- The Financial Services segment saw a notable 7.9% growth, indicating improved client spending in North America.
- The company secured 34 large deals with a total contract value of $4.1 billion, reflecting strong client trust and market leadership.
- Operating margins expanded by 1% sequentially, driven by improved operating metrics and pricing strategies.
- Free cash flow reached an all-time high of $1.1 billion, showcasing robust cash generation capabilities.
Negative Points
- Despite the overall positive performance, discretionary spending remains under pressure, particularly in the retail sector.
- The company faces ongoing challenges in the high-tech vertical, which continues to show softness.
- There is uncertainty about the sustainability of the recovery in the Financial Services segment, especially given mixed macroeconomic signals.
- The impact of wage hikes and the ramp-up of large deals could pose headwinds to maintaining or improving operating margins.
- The guidance for the full financial year was revised to a modest 3% to 4% growth in constant currency, indicating cautious optimism amid market uncertainties.
Q & A Highlights
Q: Hi, thank you, and good to see very good numbers after a while. Up just wanted to get a sense of selling, you know, what's the breakup of the very strong momentum this quarter, if you could, between the large deals that you've won over the last year or any kind of improvement in execution of short-cycle business or discretionary business and potentially better execution? And also when you answer that, if you can talk about how client conversations are changing if there's anything turning a bit more positive. And, you know, any change in the momentum of the short-cycle event largely continues growing at a strong? Thanks.
A: Thanks, Ankur. The view on discretionary on short cycle. What we are seeing is in financial services in the US, we've seen that a shift that we have highlighted and we saw that during the quarter outside of that, the discretionary still remains similar to where we were when we started the year, which is it's still in a difficult situation. So that's the one that we have seen the change in. The client conversations, in general, there's a lot of talk and discussion with generative AI. But the programs, even though they're not POC, actual projects are not large revenue projects and transformation. It's not so much what we are seeing driven in a large deals. The vast majority is still our cost take-out efficiency, consolidation, automation, that type of work. And in some instances where there is these are funded massively through cost takeout. The transformation is so there's not really big, large spends there. So that's how we are seeing the discretionary work at this time.
Q: Thank you, you know from here on. I mean, you've seen this change in financial services in your client conversations. Do you sense anything in particular client, especially in Europe, maybe the high-tech space or energy and utility where you highlighted enough problem still persists or even manufacturing, which might change the client behavior, maybe not this year but into next year. One of the main things clients may be waiting for?
A: So the first one, energy utilities, we've had a good outcome last year we've seen sort of similar discussions now are not huge chain manufacturing, again, good outcome. Last year, the group will be decent growth. This is slower than the losses are not likely big change there on high-tech. It's still a still difficult as you point out. I don't know what the trigger could be, of course, on a on a macro level there is not with clients. Generally speaking, I view that US inflation and interest rate and all of those discussions change that that will change something that we don't know what will that or what will that trigger be.
Q: Appreciate it. Maybe just one question for Jayesh. This great performance on the margins. Could you maybe talk about how do you think about the puts and takes from here on our utilization, especially including trainees, seems to be high, I guess that indicates fewer trainees in the system. What sort of headwind will we see from this. Secondly, I'm guessing there will be wage hikes at some point in the next couple of quarters. So how are you thinking about what will help you maintain if not improve margins from here on an extent Project Maximus?
A: Yeah, Ankur so and could the, thank you for that first of all, and if you look at the Project Maximus, and we've talked about the five pillars of Project Maximus of many of them are starting to show results a year of what, which is value-based selling is one of them efficient made by utilization and other factors or other part of it, lean and automation is the third piece in that. So there are many of these tracks which are showing results. And we still believe there is a there is a more meat there. Of course, in terms of if you look at the headwinds, you will have a comp a review at some point in time during the year, that could be a headwind. We have at this point in time, not decided the timing, et cetera of that. So that would be headwinds. Some of the large deals that we have signed in the transition and ramp-up of that would be a headwind. So we will have to balance the two as we go through the year. At this point in time, we are very confident of our margin guidance.
Q: Hi, thank you very much. A first I wanted to do get some additional feedback on financial services. You indicated that you thought that business outcomes or Business Energy had improved. I just wanted to hear a little bit more about that. It's certainly something we haven't heard from some of our software related companies, but what do you think is the driver of the improvement in financial services in particular?
A: So Keith, if you look at your commentary on that, we are seeing some recovery in US financial services specifically in areas like mortgages, capital markets and card payments of the larger clients less. So we are seeing some volume coming in and some recovery, some early signs of recovery in those areas.
Q: Do you think that emphasis or do you think that's in other words, are you winning share in those accounts for if you think that's a more broader base and say not North American banks, but there is a general trend towards recovery.
A: So I think it's combination of various factors. It's where you know where I mean there are there are instances where we are consolidating. There are instances where we have one new and larger businesses in, as I talked about, some of the large deals wins also in the financial service sector. So I think there are multiple combination of those factors.
Q: Okay. Okay. And then on just on the margin guide in terms of puts and takes you highlighted some on the previous question, but how is the you closed the deal that's adding almost $200 million in revenue on a run rate basis. How is that impacting margins and or any other issues you want to call out, including any comments on FX impact as you see it today in terms of margins? And that's it for me. Thank you very much.
A: I didn't get question clearly, if you could?
Q: How is the M&A the recent transaction that you closed, how is that impacting margins? And then also, how do you see the exchange rate impacting margins as you look out over the next couple of quarters, FX rates?
A: So Keith, there be an acquisition that we have done a, you know, compared to the size of the company is relatively a smaller to have a material margin impact. And as you know, as you have seen from our five filings, also, the main tech is coming with healthy margins and there are opportunities, et cetera, in a synergy. Coming to the ForEx. The ForEx has remained range-bound for last couple of quarters at this point, any point in time, we don't really see
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
