Wipro, Infosys March quarter results paint gloomy outlook for FY25

livemint.com:

Tata Consultancy Services Ltd (TCS) in dampening the spirits of IT investors, as their results for the March quarter (Q4FY24) offer little reassurance about the sector’s near-term prospects. Like TCS, Infosys, too, reported strong deal wins, marking a record high large deal total contract value (TCV) of $17.7 billion for FY24. However, the glaring gap between these deal wins and actual revenue growth highlights a persistent issue with slow deal conversions.

This complicates forecasting revenue growth for the industry. In Q4, Infosys constant currency (CC) revenue fell by 2.2% sequentially, a steeper decline than anticipated. The villain— muted discretionary IT spending by clients.

This downturn was exacerbated by a one-time event involving contract re-scoping and renegotiation with a major BFSI (banking, financial services, and insurance) client. Despite ongoing signings of new and long-term deals, primarily cost optimization, smaller deal volumes continue to struggle. Moreover, Infosys’ FY25 CC revenue growth guidance of 1-3% is conservative, falling below market expectations and not accounting for the In-tech acquisition.

The management anticipates a stronger first half for FY25, driven by the ramp-up of previously secured deals. Among verticals, the company expects financial services revenues in FY25 to be better year-on-year. On the other hand, it expects manufacturing growth to slow down.

Infosys’ Q4 Ebit (earnings before interest and tax) margin stood at 20.1%, a sequential decline of 40 basis points (bps). The Ebit margin guidance for FY25 is in the range of 20-22%. Wage increases pose challenges, while reductions in subcontracting costs and improvements in utilization offer potential benefits.