Infosys has posted numbers that look good on paper. Then it announced a downward revision in expectations.
The net profit after tax in consolidated form for the famous technological firm, Infosys, has grown by 6 percent during the second quarter of the financial year 2027 to Rs. 7,823 crore from Rs. 7,364 crore. The operating income for the firm has grown by 11 percent to Rs. 49,244 crore.
But there is some negative news too concerning the performance of the firm in the current fiscal year.
For FY27, Infosys trimmed down its revenue growth forecast for constant currency to 1-2%, compared to the previous 1.5-3% range, on the back of tough demand conditions. Both endpoints of the range have been reduced.
This, the company stated, was due to persisting global uncertainties and prudent discretionary spending.
On the other hand, it maintained its guidance for operating margins for FY27 at 20-22%. Thus, the company’s earnings potential remains intact despite lower growth forecasts.
This is a completely different story compared to the guidance based on the order book. The company booked $5.2 billion in bookings for large deals, with 62% being net new deals. This was compared to $3.6 billion recorded in the first quarter of FY27.
The booking process was supported by a mega deal that was more than $2 billion, according to CEO and Managing Director Salil Parekh. "We had good large deal bookings of $5.2 billion," he said.
The problem here is timing. The deal shows the company's future revenue prospects, depending on how fast the bookings are scaled up.
According to Parekh, revenue from AI was 10.5% of total revenues, up 29% quarter over quarter. The company is marketing itself as being an advisor on AI strategy for big businesses.
There is also an element of risk associated with AI for this industry. In one analysis, it was pointed out that AI is helping reduce the hours required to fulfill current contracts, and it is unknown whether vendors can generate enough additional business to cover this up. This is why having a good AI number does not always translate into higher growth.
The company finished the quarter with 332,542 workers, up by 4,480 from the first quarter. The attrition rate stood at 12.7%. Despite the cut in forecasts for growth, Infosys kept on hiring.
The other piece of good news is that the company declared an interim dividend of ₹26 per share. For investors, it takes some sting out of the disappointing outlook.
11% growth in revenue in Indian Rupee terms is not comparable to the 1%-2% guidance because the guidance is in constant currency terms, thus stripping out the currency effect. In addition to the year-on-year increase, revenue rose by 2.1% in the previous quarter. The sequential growth in profit was minimal.
Profit increased by 35% year on year. Revenue rose by 43% in that period.
This is not the first time Infosys has revised down its outlook following a good Q2 result. In October 2023, it revised down its FY24 outlook to 1.0%-2.5% from 1%-3.5%, and its shares fell 4% on that day.
According to analysts, this was a negative surprise for investors despite beating revenue forecasts and an upside in contract wins. It was not clear how the market reacted to Friday's outlook cut.
According to one of the reports from the industry, there are two sides to the story for Infosys at the end of this quarter; one is that their artificial intelligence business continues to grow and that they are making big wins with deals, while the other is their cautiousness about how quickly that will generate revenues.
