Rise in attrition, large deal wins: Top takeaways from Infosys' Q1 results

The company has maintained FY20 operating margin guidance range of 21 per cent - 23 per cent.

IT major Infosys on Friday reported a healthy set of numbers for the June quarter of financial year 2019-20 (FY20). The company delivered on all fronts, except attrition rate which saw a sharp increase. Increase in revenue growth guidance for FY20 came as a positive surprise while strong deal wins and robust growth in digital revenue were the other key positives for the company. 

"Healthy deal wins, digital growth story and upward revision in guidance augurs well for the company. Hence, we remain positive on it, said analysts at ICICI Securities in a note released post results announcement. 

Here's a look at the major highlights of Infosys' June quarter results -

FY20 growth guidance raised

Amid reports of slowdown in the sector, the Bengaluru-headquarterd company raised FY20 revenue growth guidance range to 8.5 per cent - 10 per cent in constant currency (CC) terms from 7.5 per cent - 9.5 per cent, pegged earlier, owing to healthy start of the fiscal year. 

Infosys' CEO and MD Salil Parekh said,"the company had a strong start to FY20 with CC growth accelerating to 12.4 per cent on year-over-year (YoY) basis and digital revenue growth of 41.9 per cent. This was achieved through our consistent client focus and investments which have strengthened our client relationships. Consequently, we are raising our revenue guidance for the year."

That apart, the company also maintained FY20 operating margin guidance range of 21 per cent - 23 per cent.  

Financials mostly in-line

The company reported 14 per cent YoY and 1.2 per cent QoQ increase in revenue at Rs 21,803 crore. Revenue in constant currency terms grew 2.8 per cent. Operating profit saw a decline of 1.5 per cent YoY and 3.2 per cent  QoQ. Operating margin or EBIT (earnings before interest and tax) margin declined 90 basis points (bps) sequentially to 20.5 per cent, which was mostly in-line with  Street estimates. For instance, ICICI Securities had projected EBIT margins to decline 110 basis points 

to 20.4 per cent. Net profit or PAT (profit after tax) came in at Rs 3,802 crore up 5 per cent YoY. Analysts at Emkay Global had estimated PAT of Rs 3,645.4 crore. 

Deal wins and regional growth

The company's large deal wins at $2.7 billion was the biggest ever for the company. “We had a good quarter as we continue to leverage our digital navigation framework to help our clients build and nurture their live enterprise”. “Large deal TCV was highest ever at $2.7 bn. Segment growth was robust with all  large regions and most verticals growing at double digits yoy in constant currency," said Pravin Rao, COO.

Digital revenue growth in CC terms grew 41.9 per cent YoY while core segment saw a growth of mere 0.6 per cent. Digital revenue as the percentage of Total Revenue stood at 35.7 per cent for the period. 

Among regions, revenues from North America stood at 61.6 per cent while Europe's revenue growth came in at 23.6 per cent.

Buyback and capital allocation

Infosys, in a press release, stated that it was on track towards completing its previously announced share buyback of Rs 8,260 crore. The company has till date bought back shares worth Rs 5,934 crore. On the capital allocation, the company said it expects to return approximately 85 per cent of the free cash flow cumulatively over a  five-year period through a combination of semi-annual dividends and/or share buyback and/or special dividend. The company’s current policy is to pay up to 70 per cent of the free cash flow annually.

Update on Panaya, Skava

Infosys said the company had recorded a reduction in the fair value amounting to $39 million in respect of its subsidiary Panaya. The subsidiaries Kallidus and Skava (together referred to as "Skava”) and Panaya, are collectively referred to as the “Disposal Group”. Subsequently, it reclassified these subsidiaries as they did not meet the criteria for “Held for Sale”.

Employee metrics

Total employees at the end of June quarter stood at 2,29,029 against 2,28,123 in March quarter. The attrition rate (Annualized Consolidated basis) rose sharply to 23.4  per cent against 20.4 per cent in March quarter. In the year-ago period, the figures stood at 23 per cent. "There has been no impact of attrition on deliverables and  high performance attrition is still low," the management said in a presser after results announcement. The percentage of women employess stood at 37 per cent against  36.7 per cent in March quarter and 36.5 per cent in the year-ago period.