Infosys Q3 FY25 Earnings Analysis

Lakshmi Narasimman

16 Jan 2025 — 3 min read

Infosys delivers strong Q3 FY25 results with 7.6% YoY revenue growth, record free cash flow, and robust deal wins, reinforcing confidence in its digital-led strategy.

1. Actual Results (Q3 FY25)

Revenue: ₹41,764 crore
- QoQ Growth: +1.9%
- YoY Growth: +7.6%
Operating Margin: 21.3%
- QoQ Increase: +0.2%
- YoY Increase: +0.8%
Net Profit: ₹6,806 crore
- QoQ Growth: +4.6%
- YoY Growth: +11.4%
EPS: ₹16.43
- QoQ Growth: +4.6%
- YoY Growth: +11.4%
Free Cash Flow: ₹10,647 crore
- YoY Growth: +91.9%
- Free Cash Conversion: 156% of Net Profit
Large Deal Wins: $2.5 billion
- 63% net new, growing 57% sequentially.

2. Comparison with Estimates

Metric	Actual	Our Estimate	Street Estimate	Variance
Revenue (₹ Cr)	41,764	41,395	41,320	+0.89% (vs. Street)
EPS (₹)	16.43	17.00	16.18	+1.54% (vs. Street)
Operating Margin	21.3%	21.0%	20%-21%	In-line with guidance.
Free Cash Flow (₹ Cr)	10,647	Not explicitly forecasted	-	Significant upside.

3. Market Sentiment

Positive Drivers

Strong Revenue and Margin Expansion: Despite seasonal headwinds, Infosys delivered sequential growth, beating street estimates.
Large Deals Momentum: $2.5 billion in TCV, with a strong net-new contribution, indicates healthy client demand.
Cash Flow Excellence: Record-high free cash flow with exceptional conversion highlights operational efficiency.

Challenges

Muted QoQ Growth: 1.9% QoQ growth reflects seasonal softness.
North America: Revenue contribution from North America is growing slower than other geographies.
Attrition Concerns: Voluntary attrition increased slightly to 13.7%, indicating persistent talent retention challenges.

4. Detailed Geographic Analysis

North America

Contribution: 58.4% of total revenue in Q3 (up from 57.4% in Q2 but lower YoY).
Growth: +4.9% YoY in constant currency.
Challenges: Slower growth compared to other regions, potentially due to macroeconomic uncertainty and reduced discretionary IT spending.

Europe

Contribution: 29.8% of revenue in Q3.
Growth: +12.2% YoY in constant currency, making it the fastest-growing geography.
Opportunities: Continued investment in cloud and AI solutions through platforms like Infosys Cobalt and Topaz.

Rest of the World

Contribution: 8.7% of revenue in Q3, down from 9.7% in Q2.
Decline: -11.1% YoY in constant currency.
Risk Areas: Slow growth in emerging markets and reduced demand for smaller projects.

5. Scenario Modeling for Infosys' Outlook

Scenario 1: Optimistic

Assumptions: Strong deal conversion, continued margin improvement, and USD/INR stability.
FY25 Revenue Growth: ~5.0% in constant currency.
Operating Margin: 21.5%-22%.
Catalysts: Increased client spending on generative AI and large-scale digital transformation.

Scenario 2: Conservative

Assumptions: Prolonged macroeconomic uncertainty, slower North American recovery.
FY25 Revenue Growth: ~4.5% in constant currency.
Operating Margin: 20%-21%.
Risks: Delays in deal closures and higher-than-expected attrition impacting execution.

Scenario 3: Pessimistic

Assumptions: Recessionary trends in key markets, currency volatility, and rising costs.
FY25 Revenue Growth: ~4.0% in constant currency.
Operating Margin: Below 20%.
Implications: Increased pressure on profitability and limited scope for EPS growth.

6. Strategic Outlook

Revenue Guidance Upgrade: Infosys revised FY25 constant currency growth guidance to 4.5%-5%, signaling confidence in deal pipelines.
Profitability Focus: Continued focus on operational efficiencies to maintain margins within the 20%-22% guidance range.
Digital Offerings: Infosys' Topaz and Cobalt platforms are central to its differentiation, targeting growth in generative AI and cloud solutions.

Conclusion

Infosys Q3 FY25 performance demonstrates resilience amid seasonal and macroeconomic challenges. While the outlook remains stable, success will depend on navigating regional dynamics, deal conversions, and maintaining operational efficiencies. The market sentiment should remain neutral to positive, with a focus on execution and client traction in strategic growth areas.

Recommendations: Monitor large-deal momentum and regional trends, particularly in North America and Europe.