Infosys Q3 Results: Net Profit Falls 10% On New Labour Code Impact, Guidance Revised Higher
Infosys Ltd. joined other Indian IT companies to report a fall in net profit in the third quarter of the current financial year due to higher costs on labour. Consolidated net profit fell over 9% to Rs 6,654 crore in the October-December quarter, compared to the preceding quarter, according to a stock exchange filing on Wednesday.
The company had to provision Rs 1,289 crore as a one-time cost to comply with new labour codes notified by the government late last year. This provision has significantly impacted the company’s profitability, resulting in a 10% decline in net profit.
New Labour Code Impact on Indian IT Companies
The new labour codes, which came into effect on July 1, 2022, have introduced significant changes to the country’s labour laws. The codes aim to provide better working conditions, social security, and welfare to workers. However, they have also increased the compliance burden and costs for companies, particularly in the IT sector.
Other Indian IT companies, such as Tata Consultancy Services and HCL Technologies, have also reported a decline in net profit due to the impact of the new labour codes. The increased costs associated with implementing these codes have put pressure on the companies’ profit margins.
Guidance Revised Higher
Despite the decline in net profit, Infosys has revised its guidance for the current financial year higher. The company now expects its revenue to grow between 15% and 16% in constant currency terms, up from its previous forecast of 14.5% to 15.5%.
The revised guidance is based on the company’s strong deal pipeline and improving demand for digital transformation services. Infosys has seen a significant increase in demand for its services, particularly in areas such as cloud computing, artificial intelligence, and cybersecurity.
Indian IT Sector Outlook
The Indian IT sector has been facing several challenges in recent times, including the impact of the new labour codes, increasing competition, and rising costs. However, the sector is also witnessing significant opportunities, particularly in areas such as digital transformation, cloud computing, and emerging technologies.
According to a report by Nasscom, the Indian IT sector is expected to grow at a rate of 10% to 12% in the next fiscal year, driven by increasing demand for digital transformation services and the adoption of emerging technologies.
Investor Sentiment
The decline in net profit has had a negative impact on investor sentiment, with the company’s stock price falling by over 2% on the day of the announcement. However, the revised guidance and the company’s strong deal pipeline have helped to mitigate the impact, with the stock price recovering some of the losses in subsequent trading sessions.
Investors are advised to keep a close eye on the company’s performance and the overall outlook for the Indian IT sector. The sector is expected to continue facing challenges, but it also presents significant opportunities for growth and investment.
Conclusion
In conclusion, Infosys’ Q3 results have been impacted by the new labour codes, resulting in a decline in net profit. However, the company’s revised guidance and strong deal pipeline provide a positive outlook for the future. Investors should continue to monitor the company’s performance and the overall outlook for the Indian IT sector, which is expected to continue growing despite the challenges it faces.
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