 "N R Narayana Murthy")
He exuded faith in the growth strategy of the company, which posted a healthy set of numbers in the third quarter of 2013-14. The numbers and the management’s confident commentary has made the market widely believe predictability and stability were returning to the information technology (IT) major.
This is the third quarter Infosys has surprised the market positively. This quarter, profit growth had beaten the Street’s estimates by 6.8 per cent. Additionally, the company had revised upwards its revenue guidance for FY14. (ON FIRMER FOOTING)
Backed by growth across verticals and in non-US geographies, Infosys posted a 21.4 per cent year-on-year growth in net profit at Rs 2,875 crore in the October to December quarter, while revenue increased 25 per cent to Rs 13,026 crore. Net profit jumped 21.4 per cent year-on-year to Rs 2,875 crore, led by higher margins. Sequentially, net profit increased 19.4 per cent, while revenues increased 0.5 per cent, marginally below consensus estimates. The company’s shares on Friday ended three per cent up on the BSE at Rs 3,548.90, pulling up the IT index 2.16 per cent.
The company added 54 clients during the quarter, and regained the only client in the $300-million category after a gap of three quarters. However, the business volume (billed man-hours in a quarter) grew at a tepid 0.7 per cent.
Chief executive officer S D Shibulal said: “The third quarter was decent, as per our expectations. Growth was predominantly in non-US geographies and operating profit margins saw improvement due to operational efficiency.”
Infosys revised revenue growth forecast for the financial year ending March 2014 to 11.5-12 per cent from 9-10 per cent. This means, Infosys would have to clock sequential growth of 1.4 per cent in dollar-revenues for January-March 2014 to meet the upper end of its revised guidance.
The good performance is “an early indicator of the fruition of management’s efforts towards transforming the company to a ‘desirable Infosys’,” said Ashish Chopra, IT analyst at Motilal Oswal Securities.
Among the other key operational parameters, operating profit margin expanded 150 basis points (bps), sequentially, to 25 per cent in Q3, primarily driven by the cost rationalisation initiatives.
Dipen Shah, head-private client group research, Kotak Securities, said: “The results were a mixed bag. While revenues matched expectations, margins were better than expectation, largely due to reduced sales and marketing expenses, and reduced headcount.”
Analysts said the company can raise margins. “The company still has headroom to increase its utilisation level by around 300 bps, to be comparable with peers, and this, in turn, will assist in increasing operating margins further,” said Ankita Somani, research analyst at Angel Broking.
Infosys saw a strong demand from Europe, with sequential growth of 5.5 per cent. The share of revenues from the geography went up to 24.9 per cent in Q3. However, North America, the largest market for the company, saw a contraction of 0.8 per cent, which the company termed “seasonal”.
There was a sharp increase in employee attrition during the quarter, in line with expectations. Attrition on the last 12-month basis was 18.1 per cent during Q3, against 15.1 per cent a year ago and 17.3 per cent in Q2. The company’s headcount declined by 1,823 in Q3 to 158,404.
Infosys said it expected clients’ budgets in 2014 to remain flat. “Clients are becoming marginally more confident about spending” though their focus on cost optimisation remains. “The year ahead looks exciting for the IT services industry. We believe the global economic environment has improved and our clients are gaining confidence to invest in their strategic initiatives,” said Shibulal. “We continue to differentiate ourselves to seize growth opportunities.”
