Infosys Q2 FY25 Earnings Preview: Revenue Growth Anticipated Due to Deal Ramp-ups and AI Initiatives

Infosys Q2 FY25 Earnings Preview: Revenue Growth Anticipated Due to Deal Ramp-ups and AI Initiatives

Infosys is set to announce its Q2 FY25 earnings on October 17, and analysts are predicting growth in the company’s consolidated revenue, driven by the ramp-up of large deals and increased traction in generative AI (GenAI) initiatives. Along with revenue growth, cost optimization efforts are expected to support profit margins. However, trends in discretionary spending, particularly in key sectors such as Banking, Financial Services, and Insurance (BFSI), will be crucial factors to monitor.

Expected Financial Performance

According to a poll conducted by Moneycontrol, Infosys is expected to report a sequential revenue growth of 3.9% to reach Rs 40,857 crore. Meanwhile, the company's net profit is projected to increase by 6.3% quarter-on-quarter (QoQ), amounting to Rs 6,769 crore. Earnings estimates from various analysts are closely aligned, which suggests that any significant deviation—positive or negative—could trigger notable stock movements.

Key Factors Driving Growth

1. Deal Ramp-ups and Volume Growth
   The ramp-up of large deals secured in previous quarters is projected to be a major contributor to Infosys’ topline growth. Analysts from Axis Securities anticipate a 4.9% QoQ improvement in revenue due to the execution of delayed deals and the conclusion of deeper furloughs.

2. Generative AI and Digital Transformation
   The push for generative AI has been another key driver of revenue. IDBI Capital expects Infosys’ revenue to grow by 3.5% in USD terms, partially attributed to new AI-related deals and the expansion of digital transformation projects. BNP Paribas also highlighted generative AI and discretionary demand as primary growth catalysts, noting that these elements could play a pivotal role in driving a recovery cycle for the company.

3. In-Tech Acquisition
   In April 2024, Infosys announced the acquisition of In-Tech, a German engineering R&D services provider specializing in the automotive sector. The all-cash deal, valued at 450 million euros, is expected to close in H1 FY25. Analysts predict that this acquisition will add up to 90 basis points to revenue, with Nuvama Institutional Equities forecasting a 1% revenue contribution from this deal.

4. Seasonal Strength and BFSI Recovery
   Seasonal factors and continued recovery in the BFSI vertical are expected to further support Infosys' revenue growth. Kotak Institutional Equities and other brokerages have pointed out that the recovery in this sector, coupled with the ramp-up of mega deals, will positively impact the company's earnings in the upcoming quarter.

Market Outlook and Stock Reaction

With earnings estimates remaining within a narrow range, any unexpected deviation in Infosys’ results could lead to a sharp reaction in its stock. Investors and analysts alike are keenly watching how Infosys navigates the recovery cycle with its focus on GenAI and deal ramp-ups, especially as discretionary spending in key verticals remains a crucial variable.

On October 14, shares of Infosys competitor HCLTech closed 1.4% higher at Rs 1,865, underscoring market confidence in the broader IT sector ahead of Infosys’ earnings report.