Infosys Ltd. is expected to report muted sequential growth in the December quarter, with margins seen holding firm even as seasonality and furloughs weigh on revenue momentum. The Bengaluru-based software developer will report its third-quarter results on January 14.

Financial Performance Expectations

Bloomberg estimates show revenue and operating profit rising about 2% quarter-on-quarter, while net profit is seen little changed. EBIT margin is expected to inch up to 21.14% from 21.02% in the previous quarter.

Quarterly Dynamics and Growth Drivers

Constant currency revenue growth is projected to improve, while headcount is expected to remain broadly stable. The December quarter is expected to reflect the absence of usual pass-through revenue and the impact of seasonal furloughs. These are partly offset by benefits from earlier deal wins and internal efficiency initiatives.

Management commentary on FY26 guidance, discretionary spending trends and budget visibility for calendar year 2026 will be closely watched.

Analyst Expectations

Investec expects constant currency revenue growth of 0.8% quarter-on-quarter and 0.7% growth in US dollar terms. Growth likely supported by earlier deal wins and partial accretion from the NHSBSA contract. Q4 expected to be stronger than usual, led by accretion from NHSBSA and the Telstra joint venture. EBIT margin expected to improve, aided by Project Maximus and currency benefits.

Jefferies projects revenue to remain broadly flat sequentially, with around 0.3% growth in constant currency terms. Margin likely to expand by about 30 basis points, supported by currency benefits and partly offset by deal ramp-up costs.

UBS notes that absence of pass-through revenue likely to result in a muted growth quarter. Seasonal furloughs expected to weigh on margins. The firm expects the company to maintain FY26 guidance.

Nuvama anticipates constant currency revenue growth of 0.4% quarter-on-quarter and 0.2% growth in US dollar terms. EBIT margin likely to expand by around 20 basis points, supported by Project Maximus and currency tailwinds.

Key Focus Areas

Analysts will focus on several key areas during the results announcement:

• FY26 guidance updates and revenue growth projections
• Calendar year 2026 budget visibility and deal pipeline strength
• Discretionary spending trends in BFSI sector
• AI adoption progress and margin improvement levers
• H-1B visa fee impact on operations
• Large deal total contract value performance

Most analysts expect Infosys to maintain its FY26 revenue growth guidance of 2%-3% and margin guidance of 20%-22%, despite the seasonal softness in the current quarter.

Infosys faces the potential loss of $150 million in annual revenue from one of its largest clients as a key segment of its major Daimler contract awaits renewal. The workplace solutions portion of the $3.2 billion eight-year deal, which handles IT procurement operations, represents the largest component of the comprehensive IT transformation agreement signed in December 2020.

Contract Details and Revenue Impact

The Daimler contract encompasses services across six business divisions, with workplace solutions being the most significant revenue contributor. Under this segment, Infosys procures and provides iPhone cases, laptops, Microsoft 365 subscriptions, and fingerprint readers for the automaker's back-end IT operations.

The potential $150 million loss represents 0.7% of Infosys's total business, based on the company's $19.28 billion revenue for the fiscal year ended March 2025.

Execution Challenges and Outstanding Dues

The partial renewal discussions have been complicated by differences between the two companies over execution and billing delays. As of January 12, Daimler, including Mercedes-Benz Group and Daimler Trucks, owes approximately $47 million in dues to Infosys dating back to 2021.

According to industry sources, workplace solutions was scheduled for renewal last year, but negotiations have extended into 2025. An initial request for proposal floated by Infosys was not agreed upon by the client, leading to the current uncertainty.

Strategic Importance and Competition

Daimler ranks among Infosys's three largest clients, alongside Apple Inc. and JPMorgan Chase & Co. The contract, dubbed the 'twice as fast program,' has been instrumental in doubling Infosys's revenue from manufacturers to $3 billion in the last fiscal year from $1.3 billion in FY20.

However, competitive pressure is mounting, with one of India's top IT services providers reportedly eyeing a portion of the Daimler contract and having "already made a bid" for the business.

Subsidiary Performance Decline

Revenue from Infosys Automotive and Mobility GmbH, the subsidiary created specifically for the Daimler project, declined for the first time in FY25. The unit's revenue fell 8.5% to $418 million, marking a significant shift after experiencing over 40% growth for two consecutive years. The subsidiary has remained unprofitable for four straight years.

Industry Context and Future Outlook

The potential contract loss occurs amid broader challenges facing the IT services sector, including macroeconomic uncertainty, tariff concerns, and increased automation adoption that have pressured client spending. Industry analysts note that even where renewals occur, pricing pressure and scope rationalization typically offset expansion opportunities.

Similar mid-contract terminations have affected other major Indian IT providers, including Tata Consultancy Services' $2 billion Transamerica deal cancellation in June 2023 and HCL Technologies' ended partnership with State Street later that year. Companies increasingly establish internal tech centers, reducing reliance on external IT vendors.

For Infosys, which expects 2-3% constant-currency revenue growth in FY26, successfully retaining and renewing the Daimler contract segments remains crucial for maintaining its growth trajectory in the competitive IT services landscape.