Infosys misses profit estimates as costs surge

India’s Infosys Ltd on Sunday reported June-quarter profit that missed estimates, hurt by higher employee expenses, but the IT services company raised its annual revenue outlook, citing a strong demand outlook.

Infosys’ larger IT rival Tata Consultancy Services and also smaller rivals such as HCL Technologies and Wipro have seen their margins erode as they battle a higher sector-wide talent churn and try to retain employees.

Overall expenses surged more than 29%, while operating margins for Infosys for the June quarter came in at 20.1%, down 3.6% year-on-year. The company also retained its operating margin guidance for full year at 21%-23%.

The company was making investments in talent through hiring and competitive compensation revisions, which will impact margins in the immediate term, Nilanjan Roy, chief financial officer, Infosys said in a statement.

However, Bengaluru-based Infosys expects revenue growth of 14%-16% for the financial year to March, slightly up from its view of 13%-15% forecast in April.

“We see good volume growth, good pipeline of large deals and that gives us the confidence for increasing revenue guidance,” chief executive officer Salil Parekh said in a media call.

Infosys saw its large deal signings dropping about 35% to $1.7 billion rupees, while gross addition of clients during the quarter dropped to 106 from 113 a year ago.

But chief executive Parekh said the company was seeing good traction with large clients.

Consolidated net profit for Infosys rose 3.2% 53.60 billion rupees ($12.5 million), but missed analysts estimates of 56.26 billion rupees, according to Refinitiv data.

The April-June quarterly earnings reports have started on a weaker note for Indian IT services companies, with TCS, HCL Technologies and Wipro also missing their first-quarter profit estimates.

Revenue from operations for Infosys jumped 24% to 344.70 billion rupees.