Infosys Ltd reported higher-than-expected revenue in the first quarter, prompting India’s second-largest software services exporter to raise its sales outlook for the year.
The strong forecast from the IT behemoth came at a time when many industry watchers worried if clients of India’s $227 billion sector would cut back spending on digital services amid predictions of a global recession.
“Our strong overall performance in Q1 amidst an uncertain economic environment is a testament to our innate resilience as an organisation. We continue to gain market share and see a significant pipeline,” said Salil Parekh, the chief executive officer and managing director of Infosys. “We raised our revenue guidance based on our deal pipeline.”
Infosys said it expected revenue to rise 14% to 16% in the year ending March 2023, up from its prior outlook of 13% to 15%.
“Though there are pockets where we see change, our pipeline looks in good shape,” Parekh added.
Like its rivals TCS and Wipro, Infosys also reported a drop in operating margin in the quarter as it spent more to hire employees and increased wages to retain talent.
During the quarter, operating margin stood at 20 per cent, which was a decline of 3.7 per cent over the last fiscal and 1.5 per cent drop over the last quarter.
“Record hiring in this quarter, salary hikes and fall in utilisation level had impacted margin. But these are all investments,” said Infosys Chief Financial Officer Nilanjan Roy. “We will look aggressively at levers like utilisation, subcons, automation, employee pyramid for optimising our costs.”
Roy also justified the higher costs.
“We are seeing the growth traction in the market and we are absolutely sure of putting everything (in) to get this growth,” he said. Despite the margin drop, Infosys retained its operating margin guidance at 21-23 per cent for the current financial year.
Infosys’s first-quarter net profit rose 3.17 per cent to 5,360 crore, while revenue rose 24 per cent from a year ago to Rs 34,470 crore. Analysts had expected the company to earn Rs 5,670 crore on revenue of Rs 34,009 crore.
In the first quarter, Infosys had a large deal total contract value of $1.7 billion. This was lower than last quarter’s TCV of $2.3 billion.
Despite spending more, Infosys saw many employees leave. Attrition rose to 28.4 per cent in the first quarter, versus 27.7 per cent in the preceding quarter.
“We are making many interventions, results of which are already visible. Our quarterly attrition has already come down. We will also hire 50,000 employees this fiscal. So, we are addressing the supply side issues,” Roy said.
Infosys added 21,171 employees on a net basis to take its total headcount to 3,35,186. The net employee addition remained one of the highest among the large IT firms.
"Infosys is preparing for growth more aggressively. Net hiring numbers are the highest among all Indian IT firms. Overall, it is a great result from Infosys for the first quarter," Pareekh Jain, an IT outsourcing advisor & Founder of Pareekh Consulting, said on Twitter.