Infosys beats TCS as growth continues on the back of North America business | Company Business News

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The growth engines that fuelled Infosys Ltd’s performance in the first half of the financial year (April-September) retained momentum in the December quarter helped by strong business in its core North American market.

India’s second-largest information technology (IT) services company also raised its full-year revenue outlook for the third time this financial year, crediting improving discretionary spending by financial services companies in the US and Europe. 

Infosys’ revenue improved 0.92% from the second quarter to $4.94 billion in the December quarter, beating analysts’ expectations and signalling brighter prospects for India’s IT services sector.

A Bloomberg poll of 22 analysts had expected Infosys to report a revenue of $4.81 billion for the third quarter.

While Infosys fared better than its larger peer Tata Consultancy Service Ltd, India’s third-largest IT services company HCL Technologies Ltd reported stronger growth for the December quarter. TCS reported a 1.7% sequential decline in revenue to $7.54 billion whereas HCLTech reported a 2.6% jump to $3.5 billion.

Also read | Looking within: Infosys turns to employees for new ideas to be scaled up as business offerings

To be sure, the October-December period is a seasonally weak quarter for IT services companies on account of the holiday season and fewer working days.

Infosys has raised its revenue growth guidance for 2024-25 to 4.5-5% in constant currency terms from the 3.75-4.5% pace it had outlined previously. The company had started the fiscal year by outlining a full-year growth of 1-3% in constant currency terms.

Infosys’ revenue had grown at 1.4% in FY24 in constant currency terms, which does not take currency fluctuations into account.

“The last quarter (July-September), we have seen discretionary (spending) becoming good in financial services in the US, and now this quarter, we have seen (that in) financial services in Europe also the discretionary is showing signs of improving,” chief executive Salil Parekh said in a post-earnings conference call on Thursday.

Investors abroad cheered the results. Infosys’ shares on the New York Stock Exchange grew 1.7% to $22.89 as of 6:24 pm in India. On India’s NSE, the stock fell 1.52% to end the day’s trading at 1,920.05 per share, while the benchmark Nifty 50 index gained 0.42%.

Also read | TCS’s outlook lends comfort, but a risk clouds FY26 revenue prospects

Positive signs

In terms of incremental revenue, Infosys added $550 million in April-December, up 3.93% from the same period last year. 

Infosys’ revenue growth in FY24 was 1.9%, making it the company’s slowest full-year growth since Parekh took over as CEO in January 2018. 

 At least one analyst, however, signalled a return of discretionary spending for the company.

“Deal wins are flat but net new deals have increased, which, to us, signals that discretionary spending is back,” said Abhishek Pathak, lead analyst for IT services at Motilal Oswal Financial Services. 

Infosys’ net new deals made up 63% of its large deal total contract value of $2.5 billion, an increase of 57% sequentially.

Another bright spot in Infosys’ report card was its net profit, which came in 3.5% higher at $804 million for the December quarter. A Bloomberg survey of 20 analysts had expected the company to report a net profit of $790 million.

TCS’ December-quarter net profit increased 2.6% to $1.46 billion and HCLTech’s jumped 7.5% to $544 million. 

Unlike TCS, which culled its headcount by 5,370 in the December quarter, Infosys continued to add headcount from the first half of the fiscal year, signaling that demand in projects was picking up. Infosys increased headcount in the October-December period by 5,591 to end 2024 with 323,379 employees. 

HCLTech too increased its headcount by 2,134 employees.

Also read | HCL serves up a heady cocktail, but valuation leaves no room for error

Margins under pressure 

At the heart of Infosys’ latest quarterly growth was its North America business, which accounts for 58% of the company’s revenue. Incremental revenue from the region rose 2.8% sequentially.  

Banks also increased the business they gave Infosys in the December quarter. The company earned $1.37 billion in revenue from financial institutions, up 2.9% sequentially. 

The company’s profitability in the December quarter was a shade better at 21.3%, up 20 basis points sequentially. However, its profitability could come under pressure as Infosys takes the impact of the rollout of its once-a-year wage hikes to employees. 

In addition, its peers did better in terms of operating margin. HCLTech’s operating margin improved 90 basis points to 19.5% whereas TCS’s profitability grew 40 basis points to 24.5%.

Also, Infosys didn’t sign any mega deals—those valued at over $1 billion in total contract size—during the December quarter.

Infosys, like its peers, didn’t disclose revenue or confirmed order bookings from generative artificial intelligence (GenAI) projects, but maintained that real-time adoption of the technology had gained pace.

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