(Bloomberg) — Infosys Ltd. slid as much as 1.9% after a surprise hike in its annual revenue outlook failed to assuage investors concerned about worsening margins and tepid global IT spending.
Revenue will grow 14% to 16% in the fiscal year through March 2023, India’s No. 2 software services exporter said in a statement Sunday. That’s up from 13% to 15% it projected in April, but still lags the average analysts’ estimate for 17%.
India’s $227 billion IT industry, led by Tata Consultancy Services Ltd. and Infosys, is bracing for an economic slowdown with some analysts predicting a global recession. On Sunday, Infosys executives sought to temper concerns about the prospects for IT budgets, saying their order book was as strong as it had been for much of 2022.
“The pipeline that we have today for our large deals is larger than what we had three or six months ago,” Chief Executive Officer Salil Parekh told a news conference Sunday. “Having said that, we of course, recognize what is going on in the global environment.”
For the April to June quarter, Infosys said revenue rose 24% from a year ago to 344.7 billion rupees ($4.3 billion), beating estimates of 340.09 billion rupees. Revenue from the financial services segment rose 15% from a year earlier to 105.6 billion rupees, although it trailed estimates of 106.87 billion rupees.
The company’s net profit rose 3.1% to 53.6 billion rupees for the first quarter to June, despite expenses such as wage costs. Analysts estimated 56.7 billion rupees. Bigger rival TCS also reported net income that missed analysts’ projections.
Finance Chief Nilanjan Roy warned that the company making “competitive compensation revisions” to reduce attrition levels will impact margins in the immediate term.
Rising competition from global IT giants such as Accenture Plc and International Business Machines Corp., and an acute tech talent crunch have also pressured margins of India’s software services companies.
Technology spending may also be hurt by customers bringing employees back to workplaces, dampening the demand for remote services that surged during the early part of the Covid-19 pandemic. Russia’s attack on Ukraine is set to slow new orders especially from Europe, which accounts for a quarter of Infosys’s revenue.
Other Key Highlights:
- Infosys retained FY23 operating margin outlook at 21% to 23%, estimate 22.2%
- Total costs were at 276.1 billion rupees, up 29% y/y
- Operating margin 20% vs. 23.7% y/y, estimate 21.4%
- First quarter large deal total contract valued at $1.7 billion
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