Infosys BPM saw slowest growth in 6 years as revenue drops from top clients in FY23

Infosys’ business process management (BPM) arm – the largest subsidiary of the IT company – last fiscal year recorded its slowest growth since 2016-17, hurt by a decline in revenue from its top accounts and the nature of deals where the bulk of the proceeds were already accounted for in the previous two years.

Revenue at $934 million for the year ended March 31 grew at 4.2% from the year before. Operating margin of 17% was the narrowest in at least a decade.

“Revenue from top-10 clients declined by $28 million, or 6.4% (in FY23), of which the top client contributed $22 million,” Kotak Institutional Equities said in a research report. The top client’s revenue contribution too declined 15.3% to $121 million. However, excluding top 10 clients, the revenue grew at a “healthy” 14.5% on year, the report added.

An email sent to Infosys seeking comment remained unanswered at press time Monday.

The BPM arm accounted for 5.1% of Infosys’ revenue of $18.21 billion in FY23, according to ET’s calculations.

Apart from a lower contribution from the top clients, experts said the deceleration in growth was also because of the nature of BPM deals and the base effect after witnessing strong post-Covid growth in demand.

“The current trends (low growth) are primarily due to 20-30% lower value from large deals as compared to when the deals started. There is much more recognition of revenue in the early years and then a deceleration in the latter years,” said Peter Bendor-Samuel, founder and chief executive at IT research firm Everest Group. “Hence, we are now entering year three with the mega deals recognising less revenue,” he said.

Secondly, this phenomenon of higher revenues in initial years creates a base effect where high growth is hard given that it is compared to the exceptional performance last year driven by the mega deals, Bendor-Samuel told ET.

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Recovery in sight

IT analysts and experts, however, said the pipeline for the BPM looks robust and all firms, including Infosys, will benefit from the demand, especially in a recessionary environment. The Everest Group said there is a big pipeline of mega deals in the industry, and Infosys is well positioned in this pipeline, hence it will not be surprising to see the firm recover quickly.

According to the research firm’s estimate, for the 12 months through March 2024, the revenue growth of 26 BPM firms is estimated to be 7.7% compared with a 5.2% expansion expected for the top 20 IT sector companies. That would be the BPM sector’s first outperformance since the third quarter of FY21, indicating that they perform better during a downcycle, and the gap could widen further from here, the Everest Group said.

Namratha Dharshan, chief business leader of India research at tech research firm ISG, said BPM demand continues to be strong. “We are comparing the current growth to exceptional growth in 2022. Industry-specific BPM continues to fuel overall managed services growth,” she said.