Software major Infosys on Thursday reported better-than-expected earnings of Rs 6,368 crore for the June quarter and also surprised the street by upping its sales forecast for FY25 to 3-4% in constant currency terms from 1-3% earlier. The higher forecast indicates clients are starting to spend more on technology in a resilient global environment.

Infosys net profits, which fell 20% sequentially, mainly due to an income tax refund received in the last quarter, were led by growth in its banking, financial, services and insurance (BFSI) vertical.

The Infosys ADR jumped 9% in early trades on the NYSE as the Bengaluru-headquartered company reported a near 4% sequential increase in the consolidated revenue to Rs 39,315 crore in April-June, beating estimation of Rs 38,810 crore as pegged by Bloomberg. Moreover, the earnings before income and tax (EBIT) margin, rose a whopping 100 basis points quarter-on-quarter to 21.1%aided by the company’s margin expansion program, Project Maximus. The company retained its operating margin guidance for the fiscal 2025 at 20-22%.

However, large deal wins were slightly smaller at $4.1 billion in Q1FY25 from $4.5 billion in Q4FY24.

CEO Salil Parekh, said the company has got off to a good start to FY25 with strong and broad-based growth, operating margin expansion, robust large deals, and highest ever cash generation. “This is a testimony to our differentiated service offerings, enormous client trust, and relentless execution” Parekh said,

Jayesh Sanghrajka, chief financial officer said, “We had 80 basis points coming from Project Maximus, on the back of better pricing, which is value-based selling, better benefits from our efficiency parameters, which is utilization, etc. Sanghrajka added that 40 basis points came from one-off benefit. “On the headwinds, we had 1.2% coming from better variable pay and higher deals and other costs, resulting in almost 1% margin,” he explained.

Infosys has revised its annual revenue growth guidance five times in the previous five quarters. In March the company had slashed it to 1-3% from 4-7% a year back.

“First, we had a strong performance in Q1 on volumes as well as the improvement that we made on financial services in the US. Second, we had a very strong performance on large deals in Q1, which gives us more visibility into this financial year. And third, we completed the Intech acquisition, which also helps us in this guidance,” Parekh said.

The company’s subsidiary completed the acquisition of German company In-tech for 450 million euro in the July and expects it to contribute to the topline from the current, September quarter.

VERTICAL PLAY

The IT company’s revenue from its largest vertical, the financial services, saw a 1.1% sequential increase in constant currency terms. Meanwhile, those of retail rose 0.5%.

“The US financial services, we have started to see some recovery, especially in the cards, payments, capital markets areas,” Sanghrajka said.

And, sales from the communications vertical, the third largest after retail, fell by 0.2% sequentially in June quarter in constant currency terms. Revenue from energy, utilities, resources, and services segment fell 0.1%. Meanwhile, revenue from manufacturing and life sciences were flat.

“Manufacturing continues to remain strong in this sector, but our manufacturing growth we expect this year to be lower than the last year, because last year we had a very strong growth in manufacturing. Retail and e-Wallet remains similar to what we saw earlier,” Sanghrajka added.

The company also said it was seeing strong traction in the generative artificial intelligence space, without disclosing its revenue numbers or the deal size.

“We’re not seeing this POC work… we’re seeing a lot more work which is production projects… For example, we’re doing some work on credit risk analysis. This is a project which is in production with a bank where with generative AI and AI, we’re able to improve the quality of the decision-making, help them improve the quality of decision-making, and also the timing, make it better,” Parekh said.

The company in its annual report had said that they have 50 active client projects and was having conversations with over 300 clients about it.

Further, the company’s revenue contribution from North America and Europe fell in the June quarter. While the revenue from India rose and the rest of the world was flat. The revenue contribution from North America fell 0.7% on a constant currency basis to 58.9% and that from Europe decline 0.2% to 28.4% in the quarter ended June.