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After a long wait, Infosys, India’s second-largest information technology services company, seems to have finally achieved the kind of growth that had been eluding it for the past few years.
For the quarter ended June, the company reported seven per cent sequential growth in revenue, the highest in the past 15 quarters, even as it reported a decline in net profit and operating margin compared to the March quarter. The management has often argued that once growth returned, everything else would fall into place, whether it was profitability or attrition.
On a year-on-year basis, Infosys’s net profit increased five per cent to Rs 3,030 crore. At Rs 14,354 crore, revenue increased 12.4 per cent year-on-year, much ahead of the consensus analyst estimates, backed by strong order wins and growth across all key geographies and business verticals. The robust sales growth was well supported by volume growth (growth in billed manpower during the quarter) of 5.4 per cent, the highest in the past 19 quarters. This was even better than the volume growth of 4.8 per cent reported by larger peer Tata Consultancy Services for the June quarter.
Infosys’s better-than-expected performance had an instant effect on bourses, with the stock opening seven per cent higher in morning trade. It closed at Rs 1,112.65 on the BSE, a rise of 11.05 per cent over the previous day’s close. Infosys’s gains also rubbed off on other IT stocks, with the S&P BSE IT index gaining 4.57 per cent on a day when the overall stock market closed 0.84 per cent lower.
On a sequential basis, net profit fell 2.1 per cent, while revenue grew seven per cent. The management, however, desisted from terming the June quarter a ‘turnaround’ one and reiterated the biggest contributor to performance was “operational efficiency”.
According to Bloomberg consensus estimates, Infosys’s revenue and net profit were pegged at Rs 14,067 crore and Rs 3,021 crore, respectively.
In dollar terms, net profit stood at $476 million, down 1.3 per cent on a year-on-year basis and 4.5 per cent lower than in the March quarter. At $2,256 million, revenue grew 5.7 per cent and 4.5 per cent on a year-on-year and sequential basis, respectively.
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“I am very pleased with our performance in the first quarter. Our efforts in redesigning our clients’ experience and our widespread adoption of innovation, both in grassroots and breakthroughs, are starting to bear fruit in large deal wins and growth of large clients,” said Chief Executive Officer and Managing Director Vishal Sikka. “I believe that is the result of the initiatives we have taken and the deep client focus we have brought.”
On the back of increasing visibility and a better deal pipeline, the company raised its full-year dollar-term revenue growth estimate to 7.2-9.2 per cent, compared with 6.2-8.2 per cent, which it had announced at the beginning of the quarter.
However, it retained the constant-currency growth forecast of 10-12 per cent, given the volatility in cross-currency movements. The estimate does not reflect the revenue contribution from the acquisitions it has made in the recent past. “Infosys’s results beat our estimates on the revenue front, with margins in line with estimates,” Dipen Shah, head (private client group research), Kotak Securities, said in a post-earnings note.
As expected, the company’s operating margin shrunk 170 basis points to 24 per cent sequentially, primarily because of the impact of a wage increase (effective April 1) and investment in new areas. The company added 79 clients during the quarter and regained one in the $300-million revenue (a year) bucket, which it had lost in the preceding quarter. Similarly, the number of clients contributing annual revenue of more than $200 million each rose by two to six during the quarter, owing to various client-centric and account-mining initiatives.
During the quarter, all business verticals, service lines and geographies delivered. Operations in the company’s largest market, North America, grew 5.1 per cent sequentially, while its business in Europe showed expanded 1.2 per cent. Among segments, the growth was led by retail and life sciences, which grew 7.3 per cent sequentially, followed by manufacturing (5.4 per cent) and financial services & insurance (2.8 per cent).
“The company has achieved significant progress in its quest of ‘new and renew’, with extensive training of employees and implementation of projects in emerging areas, including design thinking, artificial intelligence and automation. On the other hand, reorganisation of client-facing initiatives is leading to deeper penetration among large clients, while increasing the client count as well,” said Shah of Kotak Securities.
In terms of employee parameters, Infosys improved the utilisation rate (excluding trainees) to 80.2 per cent. In the past 12 months, attrition had risen by 90 basis points to 19.2 per cent. “We continued the roll-out of employee-engagement initiatives around collaboration and simplification of internal processes to retain industry’s best talents,” said U B Pravin Rao, chief operating officer.
After discounting the 8,555 people that left the company during the quarter, Infosys added 3,336 people on a net basis. This raised its headcount to 179,523 at the end of the quarter.
