 "Infy springs a pleasant surprise yet again")
Infosys, India’s second largest information technology (IT) services company, on Thursday beat the Street’s estimates with better than expected financial numbers for the three months ending December, the third successive quarter in a row. On the back of a strong show, increased visibility and healthy order pipeline, Infosys revised upwards its annual revenue guidance for FY16 by at least 280 basis points (bps).
The Bengaluru-based company reported 6.6 per cent growth in net profit to Rs 3,465 crore, while its revenues grew 15.3 per cent to Rs 15,902 crore when compared with the corresponding quarter in the previous financial year. The company’s growth was supported by a strong volume growth (growth in billed personnel during the quarter) of 3.1 per cent on quarter-on-quarter (QoQ) basis. Sequentially (when compared with Q2 of FY16), the net profit grew close to two per cent, while revenue grew 1.7 per cent.
In dollar terms, the company’s revenues — at $2.41 billion — reflected a growth of 8.5 per cent on a year-on-year (YoY) basis, while sequentially the growth was 0.6 per cent. The net profit growth at 0.4 per cent to $524 million was nearly over the same period last year, while on QoQ basis, the growth was 0.9 per cent.
The Bengaluru-based company reported 6.6 per cent growth in net profit to Rs 3,465 crore, while its revenues grew 15.3 per cent to Rs 15,902 crore when compared with the corresponding quarter in the previous financial year. The company’s growth was supported by a strong volume growth (growth in billed personnel during the quarter) of 3.1 per cent on quarter-on-quarter (QoQ) basis. Sequentially (when compared with Q2 of FY16), the net profit grew close to two per cent, while revenue grew 1.7 per cent.
In dollar terms, the company’s revenues — at $2.41 billion — reflected a growth of 8.5 per cent on a year-on-year (YoY) basis, while sequentially the growth was 0.6 per cent. The net profit growth at 0.4 per cent to $524 million was nearly over the same period last year, while on QoQ basis, the growth was 0.9 per cent.
A Bloomberg estimate by analysts had said Infosys was expected to report Rs 15,755 crore in revenue, with a net profit of Rs 3,351 crore.
The dollar revenue of the company was estimated to be at $2394 million.
“This combination helped us deliver encouraging results despite the traditional seasonality of the quarter and the additional headwinds, and will strengthen the execution of our strategy towards consistent profitable growth,” Sikka added.
On the back of a strong Q3 performance, Infosys raised its constant currency revenue guidance to 12.8-13.2 per cent as compared to earlier stated 10-12 per cent. In the USD term, the company said it was expecting its revenues to grow 8.9-9.3 per cent, a growth of at least 250 bps when compared with earlier projected 6.4-8.4 per cent. “We are optimistic about the near-term growth prospects and that’s why we have revised our guidance,” said Sikka.
Earlier, Tata Consultancy Services, the sectoral leader in India, had seen lower revenue growth, which it had attributed to the furloughs (extended holidays) in its main market - the United States - and the impact of the Chennai floods.
“The healthy volume growth this quarter has been encouraging. The lesser working days and our investments into additional trainees resulted in softer pricing and utilisation for the quarter,” said U B Pravin Rao, president and COO, Infosys.
The better than expected numbers of the company in a traditionally slow quarter lifted Infosys’ share price by 4.28 per cent on the Bombay Stock Exchange at Rs 1,128.70, when the overall market was down 0.33 per cent. One of the interesting points about Infosys Q3 numbers is that while traditionally the company was overly dependent on its top accounts, it was seen good support from the tail-end accounts, which the company had been adding for the last few quarters.
On the negative side, the company’s operating margin dropped by 60 basis points to 24.9 per cent in the quarter on QoQ basis. The company attributed this to a 1.1 per cent drop in pricing, lower utilisation and integration of Noah Consulting, a US-based company which it had acquired in October last year for a consideration of Rs 454 crore.
The company said the impact of pricing decline was offset by lower variable pay to employees to a certain extent, and expected optimism that the margins will hover at plus and minus 25 per cent in the medium term. Employee utilisation rate (excluding trainees) dropped by 70 bps to 80.6 per cent, when compared with the previous quarter.
“Infosys’ results beat our estimates for the third successive quarter with CC revenue growth of 1.1 per cent (about two per cent, excluding one-off of 2Q) and only a 60 bps fall in Ebidta (earnings before interest, taxes, depreciation and amortisation) margins,” Dipen Shah, senior vice-president and head of Private Client Group Research, Kotak Securities. “While the total contract value (TCV) of orders signed was lower due to spillover, the pipeline remains strong at $3 billion. We believe that newer initiatives like zero distance, design thinking, automation, etc will shore up the growth rates of Infosys and sustain margins over the longer term,” Shah added.
During the quarter, Infosys signed five large deals with a contract value of $962 million, including a $600 million contract that the company renewed with a large customer. In the previous quarter, Infosys signed contracts with a TCV of $1 billion. Infosys’s growth during the quarter added 75 new clients though its contribution from top clients remained flat, almost at the same level at 3.5 per cent. In terms of geography, its growth in North America — its largest market — declined marginally by 0.6 per cent, while Europe grew 2.1 per cent sequentially. India’s domestic market showed a healthy growth of 23.1 per cent on sequential basis, albeit on a smaller base.
In terms of business verticals, financial services and insurance (FSI), which accounted for more than a third of the company’s overall revenues, grew 2.7 per cent sequentially, while energy, utilities, communications and services, showed a sequential growth of 4.2 per cent. The company has announced the appointment of Punita Kumar Sinha as an independent director with immediate effect. Sinha, a founder and managing partner of Pacific Paradigm Advisors, is also the wife of the Minister of State for Finance, Jayant Sinha. The company’s board has also recommended the reappointment of Prof Jeffrey S Lehman, independent director of the company, for a term of two years, with effect from April 14, 2016.
Meanwhile, Infosys, in an internal memo to employees, said Michael Reh, chief executive designate of EdgeVerve — its product platform subsidiary — quit the firm due to personal reasons. Infosys, Sikka said, would engage Reh on a consultant role in the near future.
