Infosys Q3 results: Net profit slips 9.6% sequentially and 2% on year, ups revenue guidance

The third quarter of the current fiscal continues to be a challenging one for technology majors, with Infosys subdued performance. Consolidated net profit of India's second-largest IT services company declined 9.6% sequentially and 2.2% on year to Rs 6,654 crore, impacted by one-time exceptional charge due to the new labour codes and higher tax expenses.

The company had reported a net profit of Rs 6,806 crore as of the quarter ended September 30, and Rs 7,364 crore in the year ago period.

Topline numbers, however, were robust, with revenue increasing nearly 9% on year to Rs 45,479 crore compared to Rs 41,764 crore in the quarter ended December 31, 2024. On a sequential basis, the company's revenue grew by a modest 2.2% compared to Rs 44,490 crore in the preceding quarter (July-September) of the current fiscal.

The Bengaluru-based technology major raised its financial year revenue growth guidance to 3-3.5% in constant currency terms from the earlier 2-3%. It maintained its operating margin outlook of 20-22% for the fiscal.

Commenting on the results, Chief Financial Officer Jayesh Sanghrajka said, “Our performance was broad-based in Q3 with 0.6% sequential revenue growth, 0.2% adjusted operating margin expansion, stellar large deal wins at $4.8 billion, and robust adjusted free cash generation at $965 million in a seasonally weak quarter."

Typically, the third quarter is seasonally weak for IT companies due to weak demand owing to year-end holidays, client shutdowns, and reduced spending. Uncertainty over US tariffs, proposed $100,000 visa fees, weak discretionary spending, and a demand slowdown in the US are some other major headwinds that pose significant challenges for Indian IT firms. 

During the quarter, operating margins were under pressure with a 290 bps fall to 18.4% from 21.3% year in the corresponding quarter of the previous fiscal on the back of higher costs and impact of labour code-related provisions. On an adjusted basis, operating margin stood at 21.2%.  

 Infosys reported strong deal momentum with total contract value of large deal wins at $4.8 billion. Of this, 57% were net new contracts. 

Labour codes play spoilsport

With TCS and HCLTech's earnings weighed down by a one-time exceptional charge related to new labour codes announced by the Centre in November, Infosys's bottom line too was hit by it.

The tech major reported Rs 1,289 crore as a one-time exceptional item due to the impact of labour codes. "The adjustments for labour codes represent an increase in gratuity liability arising out of past service cost, and an increase in leave liability, together by $143 million (Rs 1,289 crore), which is recognized in the Consolidated Statement of Comprehensive Income," Infosys said in a regulatory filing to the stock exchanges. 

In November last year, the Centre had notified the four labour codes - the Code on Wages, 2019, the Industrial Relations Code, 2020, the Code on Social Security, 2020, and the Occupational Safety, Health and Working Conditions Code, 2020 - consolidating 29 existing labour laws. The new labour codes seek to govern employee benefits during employment and post-employment, and among other things, introduce changes, including a uniform definition of wages and enhanced benefits relating to leave.

 Earlier this week, both TCS and HCLTech reported a one-time exceptional cost of Rs 2,128 crore and Rs 956 crore as the impact of labour codes.

Speaking in a press conference post the results, Sanghrajka hinted that going forward, there could be an impact of around 15 basis points on an annual basis due to the labour codes.

"The labour code has an impact across multiple aspects, whether it is gratuity or other wage-related aspects, and that has been accrued. There will be an ongoing impact of roughly around 15 basis points on an annual basis, which is the regular impact of the labour code,” said Sanghrajka.

Hiring, headcount 

During the quarter under review, Infosys continued to hire aggressively and added 5,043 employees. 

As of December 31, its total headcount stood at 337,034 compared to 323,379 in the year ago period.

Sanghrajka said the company had hired around 18,000 freshers, and is on track to onboard 20,000 freshers for the current fiscal.

The company's voluntary attrition rate is on a downtrend and stood at 12.3% for the October-December quarter, which is significantly lower than 14.3% recorded in the preceding quarter.