Infosys CY24Q4 earnings call key takeaways

Demand Environment

• Clients continuing to prioritize cost takeout over discretionary initiatives
  • But spending towards new growth areas like AI, cloud adoption, cybersecurity, data and analytics is observed
• Clients have started to view IT investments more favorably post-election-related certainty and interest rate cuts in recent months

GenAI

• Have built 4 small language models for banking, IT operations, cyber, and enterprises broadly
  • Have 2.5bn parameters, built using proprietary data sets
• Developing over 100 new GenAI agents for deployment
  • Have live deployments, not just proof of concept
  • Typical business outcomes includes:
    • Time reduction
    • Cost reduction
    • Greater impact with customer base and growth
• Working closely with GenAI partner ecosystem to develop joint solutions
• Case studies:
  • Client: Large Technology Company
    • Project: Developed a Generative AI-powered research agent that generated comprehensive solutions within seconds for requests made for the product support teams
  • Client: Professional Services Company
    • Project: Created 3 audit agents to intelligently automate multiple tasks
• Using GenAI for internal productivity
  • Small and large language models helping with software development

Revenue

• CY24Q4 Revenue of $4,939mn, +6.1% YoY in CC
• Regions (in order of growth):
  • India +40.1% YoY in CC
  • Europe +12.2% YoY in CC
  • North America +4.8% YoY in CC
    • Returned to positive growth trajectory after four quarters
  • ROW     -11.1% YoY in CC
• Verticals (in order of growth):
  •   Manufacturing +10.7% YoY in CC
    • Automotive sector in Europe continues to remain slow
    • However, there is a continued momentum in areas such as engineering, IoT, supply chain, cloud ERP and digital transformation
    • The benefits of vendor consolidation are being more apparent, contributing to the growth of existing accounts and the establishment of new relationships
    • The pipeline is healthy, with a mix of large and small deals and a focus on cost takeout and portfolio rationalization
  •   Energy, Utilities, Resources and Services +8.6% YoY in CC
    • Macro headwinds and supply-demand imbalances continue to influence spending patterns
    • Growth in demand for electricity to cater to data centers is expected to bring in more investment in energy
    • Resources clients are more watchful about the changing geopolitical dynamics impacting the supply chain
    • Discretionary spend remains muted
      
    • Investment in industry clouds and energy transition solutions have helped win multiple deals
  •   Hi Tech +8.4% YoY in CC
    • Continues to remain soft
    • Some clients are reducing the run cost and pausing discretionary investments
    • Seeing opportunities in cost takeout deals, including legacy product management and managed services based business operations
    • Programs are driven by cloud computing and new tech like AI and ML
  •   Life Sciences +6.3% YoY in CC
  •   Financial Services +6.1% YoY in CC
    • Saw third consecutive quarter of volume growth
    • U.S. continues to grow strongly in this quarter and over the past few quarters
      • See discretionary spend increase in capital markets, mortgages, cards and payments
    • Have seen a revival in European Financial Services during Q3
    • Expansion into Nordics, Middle East, and Southeast Asia is also contributing to growth
  •   Communication +4.0% YoY in CC
    • Continues to face volatile macro environment, leading to growth challenges and rising OPEX pressure
    • Discretionary spending continues to be soft and current year growth is driven mainly by recent large deal wins focused on efficiency and consolidation
•   Others +3.2% YoY in CC
•   Retail +0.1% YoY in CC
  • Seeing an improvement in US with discretionary pressures easing
  • Companies are looking at investing in brand and technology initiatives
  • S/4HANA migration deadline is driving budget allocation to make enterprise workload compliant
  • Leveraging Infosys Topaz to showcase enhanced business value in predictive analytics and real-time insights and strategic decision-making

Bookings

• CY24Q4 TCV of 17 large deal wins was $2.5bn
  • 63% was net new
  • Vertical-wise, signed 5 deals in Financial Services, 4 in Communication, 3 in Manufacturing, 2 each in Retail and EURS and one in Hi-Tech
  • Region-wise, signed 11 large deals in America and 6 in Europe, also includes a BOT deal to set up a GCC in India
• Large deal pipeline has become stronger in CY24Q4
• Seeing a 3.6% 9-month pricing realization tailwind
  • Seeing pricing as stable at this point in time
• Decrease in share of to 5 clients is due to furloughs

Margin

• CY24Q4 Operating margin of 21.3%, +80 bps YoY
  • Headwinds
    • 70 bps from furloughs and lower working days, offset by higher leave utilization and others
    • FY'24 comp increase, higher variable payout, impact due to amortization of intangibles from recent acquisitions and large deal ramp-up
  • Tailwinds
    • 40 bps from currency movements
    • 30 bps from Project Maximus​
    • 20 bps from lower costs relating to provisions for post-sales customer support and expected credit loss provision, offset by higher third-party costs
• Wage hikes will happen in two phases
  • 1st phase starting January 1st
  • 2nd phase starting April 1st
  • Indian wages will increase 6% to 8% on average, with high performers getting more
  • Overseas increases will be low single digit

Employees

• CY24Q4 Total employees of 323,379, +5,591 QoQ, +716 YoY
  • Second consecutive quarter of headcount addition
• CY24Q4 Voluntary Attrition % (LTM - IT Services) of 13.7%, +80 bps YoY
•  CY24Q4 Utilization (excluding trainees) of 86%, +170 bps YoY
  • 83% to 85% is the target range
• Targeting 15,000 freshers for the year, with 20,000 expected for next year

Guidance

• FY25 Revenue growth revised to 4.5% to 5.0% in CC
  • CY25Q1 has lower working days
• FY25 Operating margin unchanged at 20% to 22%