Infosys raises revenue forecast by 10%; net up 5% in first quarter

Infosys, the country’s second-largest IT services company, on Friday announced a sound set of numbers for FY20.

An uptick in demand for its digital services, apart from a momentum in the large deal space, prompted the IT services major to increase its revenue guidance for the financial year to 8.5-10 per cent from 7.5-9.5 per cent as guided earlier.

However, Infosys continued to face margin pressure, apart from continuing higher attrition numbers, with a drop in the operating margin for the quarter. 

In the April-June quarter, net profit increased 5.26 per cent to Rs 3,802 crore year-on-year (YoY) while it dropped 6.8 per cent sequentially.

The revenues of the Bengaluru-headquartered firm rose 14 per cent to Rs 21,803 crore YoY, increasing 1.2 per cent sequentially.

In dollar terms, revenues were at $3.13 billion, a sequential growth rate of 2.3 per cent and 10.6 per cent YoY. 

However, it was lower than the Bloomberg estimate of $3.19 billion for the quarter. 

In constant currency terms, YoY growth was 12.4 per cent with a 2.8 per cent rise in sequential terms. As compared to Infosys, TCS's revenues rose 10.6 per cent YoY in constant currency terms. 

“We had a strong start to FY20 with constant currency growth accelerating to 12.4 per cent on a YoY basis and digital revenue growth of 41.9 per cent. This was achieved through a consistent client focus and investments,” said Salil Parekh, chief executive officer and managing director.

“Consequently, we are raising our revenue guidance for the year to 8.5-10 per cent,” he added.   

The IT firm reported revenues of $1.12 billion from the new technology services (called digital services), a growth rate of 39.3 per cent YoY. However, core services revenues have stayed largely flat at about $2 billion.

The operating margin, at 20.5 per cent, took a hit in the quarter. This was lower by 100 basis points sequentially. 

The IT services firm, however, maintained its margin guidance at 21-23 per cent for the financial year.

“Q1 is always a seasonally weak one for margins in the IT industry,” said Infosys Chief Financial Officer Nilanjan Roy. 

“Visa costs and wage hikes were two big costs. These had an impact on the earnings in Q1, (however) these are (also) adequately built in into our margin forecast for the full year and we remain confident of achieving it.”

The company said it had completed investment in priority areas and didn't see more such investment in this financial year. In the quarter under review, the company said it signed large deals worth $2.7 billion, having added three clients in the $100 million plus bucket. 

“The total contract value was the highest ever at $2.7 billion. Segment growth was robust with all large regions and most verticals growing at double digits yoy in constant currency,” said UB Pravin Rao, chief operating officer.

Vertically, while financial services grew 9.5 per cent YoY, hitech, communications, energy and utilities verticals posted high double-digit growth in the April-June quarter. However, life sciences and retail continued to face headwinds with both growing in low single-digits during this period.

Net staff addition during the quarter was at 908, one of the lowest in the past quarters, taking its headcount to 229,029. In 2019-20, the company will hire 18,000 people, mostly freshers, said Rao. 

However, the June quarter attrition was 23.4 per cent, 300 basis points over the preceding quarter. 

The results were declared after the close of the Indian markets, where the stock ended 1.2 per cent higher at Rs 730.05. On the NYSE, Infy ADRs were trading 5.7 per cent higher at 21:45 hours IST.