3Q24 results inline, FY24F revenue guidance below street
- 3Q24 net income of INR61.1bn (-1.7% q-o-q, -7.3% y-o-y) and revenue of INR388.2bn (-0.4% q-o-q, +1.3% y-o-y) were inline with street.
- INFY had large deal total contract value (TCV) of US$3.2bn in 3Q24 with 71% being net new.
- FY24F revenue growth guidance revised from 1% – 2.5% to 1.5% – 2.0%; mid-point guidance is 3.4% below street
Net income in 3Q24 was INR61.1bn (-1.7% q-o-q, -7.3% y-o-y), inline with street estimates. INFY recorded net income of INR61.1bn (-1.7% q-o-q, -7.3% y-o-y) in 3Q24 inline with street estimates of INR61.7bn. Net income margin in 3Q24 was 15.7% (15.9% in 2Q24) compared to street’s expectation of 15.9%. Margin drop was due to higher than expected tax provisions where the effective tax rate in 3Q24 was 29% compared to street’s estimates of 28%. INFY reported operating profit of INR79.6bn (-3.8% q-o-q, -3.4% y-o-y) in 3Q24, inline with street. Sequential decline was due to seasonality as December quarter is seasonally weak for the information technology sector. Operating margin was 20.5% in 3Q24 (21.2% in 2Q24). INFY’s 3Q24 revenue was INR388.2bn (-0.4% q-o-q, +1.3% y-o-y), inline with street expectations. Sequential decline was mainly in US whose contribution declined to 59% of revenue (61.1% in 2Q24) and on the verticals Retail segment declined. Large deal total contract value (TCV) was US$3.2bn in 3Q24 with 71% being net new compared to US$7.7bn in 2Q24. Total headcount in 3Q24 declined by 6,101 employees q-o-q to 322,663 (decline of 7,530 employees in 2Q24). Net client addition were 88 in 3Q24 compared to 100 in 2Q24.
FY24F revenue growth guidance revised for the third time. INFY revised its FY24F revenue growth guidance for the from 1%-2.5% y-o-y growth given in 2Q24 to 1.5%-2.0% (4%-7% y-o-y growth given in 4Q23). The mid-point revenue guidance in FY24F is 3.4% below street expectations, which we expect to be revised lower. INFY highlighted that while client interest in cost-efficiency programs remains strong, discretionary projects and large transformation programs are facing increasing scrutiny and are being ramped down. The major concern was delay in decision making by clients. However, INFY highlighted that its clients are leveraging INFY’s Topaz generative AI capabilities and the Cobalt cloud capabilities to create long-term value for their businesses. Meanwhile operating margin guidance remain unchanged at 20-22% for FY24F inline with street estimates of 21%. Other key takeaways are utilization rates improving to 81.7% in 3Q24 from 80.4% in 2Q24 and last 12-months (LTM) voluntary attrition declining from 14.6% in 2Q24 to 12.9% in 3Q24. Despite near term macro uncertainty impacting IT budgets, INFY’s long-term growth remains resilient.