Infosys, one of India’s leading IT services companies, experienced a significant decline in its American Depository Receipts (ADRs) on the New York Stock Exchange (NYSE) following the announcement of its September quarter results. Infosys ADRs plummeted by 7%, reaching $16.25 per share as of 7:30 pm (Indian Standard Time). This substantial drop was a direct response to Infosys trimming its revenue growth guidance for the fiscal year 2024 (FY24).
The IT firm’s revenue growth guidance for FY24 was revised to a range of 1% to 2.5%, down from the previous estimate of 1% to 3.5%. This unexpected reduction in revenue expectations had an immediate impact on the company’s stock performance. Infosys’ shares on the Bombay Stock Exchange (BSE) also took a hit, closing at ₹1,464.55 per share, down nearly 2% on Thursday.
The decision to cut the revenue guidance for FY24 was indeed a surprise. The IT industry had been closely watching Infosys as it navigated the challenging business environment brought about by the ongoing global uncertainties. In constant currency terms, the company now anticipates revenue growth in FY24 to fall between 1% and 2.5%. However, Infosys managed to maintain its operating margin guidance for the year, which is set at 20% to 22%. In the company’s Q1 FY24 results, it had already downgraded its revenue outlook for FY24 from a range of 4% to 7% to a more modest 1% to 3.5%.
American Depositary Receipts (ADRs) serve as a means for foreign companies to trade on U.S. stock markets, functioning similarly to regular shares of U.S. companies. These ADRs are certificates issued by U.S. banks, making it possible for investors to access shares of foreign companies conveniently. The 7% drop in Infosys ADRs on the NYSE underscored the concerns and apprehensions about the company’s performance and the wider IT sector.
The September quarter results did have some positive aspects, with Infosys achieving a 3.2% year-on-year increase in its consolidated net profit, which reached ₹6,212 crore compared to ₹6,021 crore in the same period of the previous year. Additionally, the company’s consolidated revenue from operations grew to ₹38,994 crores during the quarter ending in September, up from ₹36,538 crore in Q2 FY23, reflecting a 2.8% increase sequentially from ₹37,933 crore in Q4 FY23.
However, the challenges faced by Infosys in discretionary programs, particularly in the final transformation programs, coupled with a persistently sluggish decision-making process, have impacted the company’s performance. Salil Parekh, CEO and Managing Director of Infosys, acknowledged these challenges in a press conference following the results announcement. He also attributed the company’s guidance for the rest of the fiscal year to factors like the constraints on volumes experienced by Infosys in the September quarter.
Parekh highlighted the company’s future prospects, emphasizing the significance of recent major and mega contract wins. He mentioned that the ramp-ups associated with these contracts, which were previously disclosed, could be pushed out, affecting the revenue outlook. Despite these headwinds, Infosys remains confident in its future growth potential, as it navigates the evolving landscape of the IT sector.
The IT industry is facing a rapidly changing environment, with digital transformation and the acceleration of technology adoption due to the ongoing global situation. Businesses and organizations are relying on IT services companies like Infosys to adapt to these challenges and deliver innovative solutions. Infosys’ ability to respond effectively to these dynamics while maintaining profitability remains a key focus for investors and industry observers.