Why did Infosys profits decline despite an increase in revenues?

Synopsis: Infosys Ltd’s Q3 FY26 revenue rose 9% YoY to Rs. 45,479 cr, but net profit fell 2% to Rs. 6,666 cr due to a one-time Rs. 1,289 cr exceptional expense from new Labour Codes affecting employee benefit liabilities.

This company provides consulting, technology, outsourcing and next-generation digital services to enable clients to execute strategies for their digital transformation is now in the spotlight after it reported its latest quarterly results.

With a market capitalisation of Rs. 6,64,352 cr, the shares of Infosys Ltd closed at Rs. 1,599.05 per share, up from its previous close of Rs. 1,597.95 per share. The stock has fallen 17% over the past year, gained 2.5% in the last six months, and remained largely flat over the past month.

YoY performance

Revenue from operations increased by 9% from Rs. 41,764 cr in Q3FY25 to Rs. 45,479 cr in Q3FY26. Profit before exceptional items and tax up by 9% stands at Rs. 10,518 cr from Rs. 9,670 cr. Profit before tax declined by 5% from Rs. 9,670 cr to Rs. 9,229 cr. Net profit declined by 2% from Rs. 6,822 cr to Rs. 6,666 cr over the same period.

QoQ performance 

Revenue from operations increased by 2% from Rs. 44,490 cr in Q2FY26 to Rs. 45,479 cr in Q3FY26. Profit before exceptional items and tax up by 3% stands at Rs. 10,518 cr from Rs. 10,229 cr. Profit before tax declined by 10% from Rs. 10,229 cr to Rs. 9,229 cr. Net profit declined by 10% from Rs. 7,375 cr to Rs. 6,666 cr over the same period.

The reason why the profits declined 

Infosys reported a decline in profits despite higher revenues, primarily due to a one-time exceptional expense recorded in Q3 FY26. This exceptional item amounted to Rs. 1,289 crore and was related to the implementation of India’s new Labour Codes, which had a significant impact on employee benefit liabilities.

On November 21, 2025, the Government of India notified four Labour Codes that consolidate multiple existing labour laws into a single framework. These codes introduced a uniform definition of wages and enhanced employee benefits, including changes affecting gratuity and leave entitlements. As a result, Infosys had to reassess its employee benefit obligations, leading to an increase in gratuity liability due to past service costs and a rise in leave-related liabilities.

Since this impact arose from a legislative change and is non-recurring in nature, Infosys classified the Rs. 1,289 crore expense as an “Exceptional Item” in its profit and loss statement. This one-time charge reduced net profits for the quarter, even though the company’s core operations and revenues continued to grow.

Revenue segmentation by business segments

In Q3 FY26, Infosys Ltd’s revenue was diversified across business segments, with Financial Services contributing the largest share at 28.2 percent, followed by Manufacturing 16.7 percent, Energy & Utilities 13.2 percent, Retail 12.8 percent, and Communication 12.1 percent followed by Hi-Tech at 7.4 percent, Life Sciences at 7.2 percent and Other constitutes of 2.4 percent.

Revenue Distribution by Geography

In Q3 FY26, the company’s revenues were primarily driven by North America, which accounted for 55.9 percent of total revenue, followed by Europe at 32.7% percent, while India contributed 8.6 percent and the Rest of the World 2.8 percent. Year-on-year, Europe saw strong growth of 13.3%, whereas North America and other regions experienced slight declines, reflecting a geographically balanced revenue mix with steady overall growth.

Infosys Ltd is a leading Indian multinational information technology services and consulting company, headquartered in Bengaluru. The company provides a wide range of services, including digital transformation, software development, cloud computing, artificial intelligence, and business process management to clients across the globe. 

It shows strong profitability with a ROCE of 37.5% and ROE of 28.8%, backed by a 3-year average ROE of 30.7% and a low debt-to-equity of 0.08, reflecting efficient capital use and a solid balance sheet.

The stock trades at a P/E of 23.0 versus the industry’s 26.0, and the company maintains a healthy dividend payout of 65.9%, highlighting both reasonable valuation and shareholder returns.

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