“Infosys delivered strong performance in the third quarter, demonstrating how our differentiated value propositions in business AI, through Infosys Topaz, are consistently driving market share growth,” said Salil Parekh, CEO and MD.During the quarter, Infosys recorded an exceptional item of Rs 1,289 crore due to the impact of labor laws. At constant exchange rates, sales increased 1.7% year-on-year and 0.6% quarter-on-quarter.
Operating profit during the quarter fell to Rs 8,355 crore, down 6% year-on-year and down 10.7% sequentially. As a result, operating margin fell to 18.4%, compared to 21.3% in the December quarter last year and 21% in the September quarter.
The contraction in margins highlights the impact of labor legislation, higher sales-related costs and investments in new developments.
The company clocked the TCV (total contract value) of large deals at $4.8 billion, with a net new value of 57%. “Customers increasingly look to Infosys as their AI partner with proven expertise, innovation capabilities and strong delivery credentials. This has helped them unlock business potential and improve value realization,” said Salil Parekh.
Free cash flow generation at the end of the quarter was $915 million. Adjusted free cash flow generation was $965 million, 112.8% of adjusted net income.
“Our performance was broad-based in the third quarter, with sequential revenue growth of 0.6%, adjusted operating margin expansion of 0.2%, great large deals of $4.8 billion and robust adjusted free cash generation of $965 million in a seasonally weak quarter,” said Jayesh Sanghrajka, CFO.
Infosys’ financial services business, the largest contributor to revenue, reported growth of 4.8% in the quarter and 3.9% at constant exchange rates. Production revenues increased by 10.8% in reported terms and by 6.6% at constant exchange rates.
Growth in energy, utilities, resources and services remained subdued with reported growth of 1.3% and constant currency growth of 0.5%. Retail sales fell 3.8% in reported terms and 5.5% at constant exchange rates, as global retailers remain cautious about technology spending amid weak consumer demand in key markets.
Meanwhile, the communications segment achieved strong growth of 11.6% in reported terms and 9.9% in constant currency.
Year-over-year through December, revenues increased 3% year-on-year at constant exchange rates and the reported operating margin under IFRS was 20%.
The exceptional costs of Rs 1,289 crore recognized by Infosys during the quarter come in the wake of a similar hit at peers TCS and HCL Tech. Both companies also reported declining profits in the third quarter.
Global brokerage Jefferies had warned that the implementation of India’s new labor laws could erode IT companies’ profits by as much as 10 to 20%.
On Wednesday, Infosys shares closed 0.8% higher at Rs 1,608 on NSE.
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