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Bangalore-based Infosys’ better-than-expected performance in April-June (first quarter or Q1) has led several analysts to believe the country’s second largest information technology (IT) services company would raise its FY15 revenue growth forecast, during the course of the year.
In April, Infosys had given a revenue growth guidance of seven to nine per cent for FY15, which it reiterated on Friday while announcing the earnings for Q1. The guidance has not been accepted well by several observers, as it is much lower than industry body Nasscom’s of 13-15 per cent for the whole sector.
In particular, Infosys’ impressive show on margins front, which declined only 40 basis points (bps) sequentially during Q1 despite salary increments and visa costs, has analysts say that Infosys’ performance during FY15 would be better than estimated.
“The surprise during the quarter (Q1) was the less-than-expected contraction in Ebit (earnings before interest and tax) margin despite wage hike and visa-related cost,” said Daljeet S Kohli, head of research at IndiaNivesh Securities. “This illustrates that the cost optimisation initiatives taken up earlier have started yielding results. Given the stable global environment, we are of the view that Infosys’ FY15 guidance is bit on the conservative side; hence we expect an upward revision in the guidance going ahead.”
Infosys ended Q1 on a strong note. In the quarter, it posted a 21.6 per cent year-on-year (y-o-y) growth in net profit at Rs 2,886 crore, and 13.3 per cent y-o-y growth in revenue at Rs 12,770 crore, aided by sequential volume growth (growth in billed man hours) of 2.9 per cent. Although sequentially the revenue was down 0.8 per cent and net profit 3.5 per cent, the drop was far lower than anticipated. The sequential fall in net profit was mainly due to higher visa costs and salary increase, seen as business-related investments, and payment of $8 million to Infosys Foundation to comply with the mandatory corporate social responsibility norms under the new Companies Act.
The company’s operating profit margin stood at 25.1 per cent, against expectations of 23 per cent, on the back of support from cost-rationalisation measures, higher utilisation and a 126 bps benefit due to the revaluation of assets according to the new Companies Act.
“The beat to the Ebit margin was ahead of expectation, even after adjusting for change in depreciation,” said brokerage firm Prabhudas Lilladher. “Management continues to expect a flattish margin for FY15. We expect cost optimisation to drive earnings upside in FY15.”
Infosys’ hopes of raising its revenue growth guidance for FY15 are also fuelled by expectations that the new management team under leadership of chief executive-designate Vishal Sikka (who will assume office on August 1), will bring back stability and attract more clients. With stability at the top-level returning, analysts are also hopeful the high attrition levels would be tamed in a couple of quarters.
In Q1, Infosys’ employee attrition level was at an all-time high of 19.5 per cent, as the firm saw exits of 10,627 employees during the quarter. As on June 30, Infosys’ total headcount was 161,284.
BACK ON TRACK?
In April, Infosys had given a revenue growth guidance of seven to nine per cent for FY15, which it reiterated on Friday while announcing the earnings for Q1. The guidance has not been accepted well by several observers, as it is much lower than industry body Nasscom’s of 13-15 per cent for the whole sector.
In particular, Infosys’ impressive show on margins front, which declined only 40 basis points (bps) sequentially during Q1 despite salary increments and visa costs, has analysts say that Infosys’ performance during FY15 would be better than estimated.
“The surprise during the quarter (Q1) was the less-than-expected contraction in Ebit (earnings before interest and tax) margin despite wage hike and visa-related cost,” said Daljeet S Kohli, head of research at IndiaNivesh Securities. “This illustrates that the cost optimisation initiatives taken up earlier have started yielding results. Given the stable global environment, we are of the view that Infosys’ FY15 guidance is bit on the conservative side; hence we expect an upward revision in the guidance going ahead.”
Infosys ended Q1 on a strong note. In the quarter, it posted a 21.6 per cent year-on-year (y-o-y) growth in net profit at Rs 2,886 crore, and 13.3 per cent y-o-y growth in revenue at Rs 12,770 crore, aided by sequential volume growth (growth in billed man hours) of 2.9 per cent. Although sequentially the revenue was down 0.8 per cent and net profit 3.5 per cent, the drop was far lower than anticipated. The sequential fall in net profit was mainly due to higher visa costs and salary increase, seen as business-related investments, and payment of $8 million to Infosys Foundation to comply with the mandatory corporate social responsibility norms under the new Companies Act.
The company’s operating profit margin stood at 25.1 per cent, against expectations of 23 per cent, on the back of support from cost-rationalisation measures, higher utilisation and a 126 bps benefit due to the revaluation of assets according to the new Companies Act.
“The beat to the Ebit margin was ahead of expectation, even after adjusting for change in depreciation,” said brokerage firm Prabhudas Lilladher. “Management continues to expect a flattish margin for FY15. We expect cost optimisation to drive earnings upside in FY15.”
Infosys’ hopes of raising its revenue growth guidance for FY15 are also fuelled by expectations that the new management team under leadership of chief executive-designate Vishal Sikka (who will assume office on August 1), will bring back stability and attract more clients. With stability at the top-level returning, analysts are also hopeful the high attrition levels would be tamed in a couple of quarters.
In Q1, Infosys’ employee attrition level was at an all-time high of 19.5 per cent, as the firm saw exits of 10,627 employees during the quarter. As on June 30, Infosys’ total headcount was 161,284.
BACK ON TRACK?
- 7-9% Infosys' revenue growth forecast for FY15
- 13-15% Nasscom's growth forecast for IT sector for FY15
- 40bps Decline in Infosys' margin during Q1
- 21.6% Year-on-year growth in net profit at Rs 2,886 crore
- 13.3% Growth in revenues to Rs 12,770 crore
- 25.1% Company's operating profit margin
- 19.5% Employee attrition level In Q1, at an all-time high
- 10,627 No. of employees who exited the company during Q1
- 161,284 Infosys' total headcount as on June 30
