The overall demand environment for IT companies continues to be weak indicates an internal report by Kotak Institutional Equities quoting the management of India’s second largest firm Infosys. However, Infosys said recently won mega deals will provide a strong growth base for FY25.
The demand environment has not seen much change since June quarter results of Infosys barring a few mega deal closures as certain pockets in banking and financial services and discretionary spending in retail continue to be “under pressure,” said the report.
“These (the under-pressure areas) include cards, mortgages, capital markets and investment banking in financial services, discretionary retail, parts of telecom and hi-tech. These challenges are captured in muted 1-3.5% revenue growth guidance for FY24,” the September 6 Kotak note said. The Bengaluru-based firm lowered its annual guidance to 1-3.5% from 4-7% last quarter.
The brokerage said it hosted deputy CFO Jayesh Sanghrajka and investor relations head and financial controller Sandeep Mahindroo recently. The three mega deals (Danske, Liberty Global and an unnamed $2 billion extension) will ramp up in the next few months and provide a good platform for FY25, the management said.
A mail sent to Infosys seeking a comment remained unanswered.
Delay in closures of deals was one of the contributing factors for to slash the earlier guidance, while the delays were not due to decision-making pace of clients but attributed to additional regulatory approvals, the note by analysts KawaljeSaluja, Sathishkumar S and Vamshi Krishna said.
For the first quarter of FY24, net profit grew nearly 11%, but missed analyst estimates. At 1-3.5%, this will be its lowest revenue expansion in a decade and the company blamed it on spending cuts and project ramp downs.
It has been a season of large deals in the IT sector over the past few months. This is mostly because clients are cutting down on costs, monetising captives and internal assets, to focus on core operations. This comes weeks after Infosys signed a $1.6 billion AI and cloud-themed deal for an initial five-year engagement with telecom and communications group Liberty Global in August. The value of the contract could go up to $2.5 billion and, if extended to eight years, this could be one of the largest deals signed by Infosys in its four-decade history.
On Wednesday, Tata Consultancy Services bagged a $1 billion deal from the digital unit of another group firm JLR that will span over the next five years. In June TCS also won a deal from UK-based National Employment Savings Trust (Nest) to digitally transform its scheme administration services. The deal (with possible extensions) is valued at about $1.9 billion. The current 10-yr deal is valued around $1.0 billion.
Last month, Verizon Business too made HCLTech its primary managed network services (MNS) collaborator in all networking deployments for global enterprise customers. The deal value has an estimated new total contract value (TCV) of $2.1 billion for a duration of six years.
