Infosys profit rises 7 pct to Rs 3,726 cr in quarter, but cuts revenue guidance to 5.5-6.5 pct

The country’s second largest software services exporter, Infosys on Tuesday lowered its revenue guidance to 5.5-6.5% from 6.5-8.5% for the current fiscal, even as it beat market expectations to record a 7% sequential rise in its net profit to Rs 3,726 crore during the July-September quarter, on the back of higher utilisation rates and cost control. The company’s revised guidance falls below Nasscom’s industry projections of 7-8%. Explaining the rationale behind lowering the guidance, the IT major said the second half of the fiscal is expected to witness seasonal softness with a longer holiday period along with client uncertainty on spending in certain accounts. Revenue for the period grew by 2.9% to Rs 17,567 crore. Volumes during the quarter grew 1.6% compared with a growth of 1.7% in the previous quarter. Infosys also managed to marginally increase its operating profit margins (OPM) to 24.2% in the second quarter against 24.1% in the first quarter despite wage hikes. This was largely due to operational efficiencies which included its highest ever utilisation level at 84.7% and better offsite to onshore employee mix.

In dollar terms, Infosys recorded a net profit of $578 million recording a rise of 7% sequentially. Revenue for the second quarter rose to $2.72 billion, growing 2.9% over the previous quarter. The growth in constant currency terms stood at 2.2%. Its peers Tata Consultancy Services (TCS) had recorded a 3.2% sequential rise in revenue while the net profit grew by 8.4%. Crosstown rival Wipro had recorded a 2.1% sequential rise in revenue growth and a 4.6% growth in net profit in dollar terms.

Infosys also undertook a review of its business that reasserted the continuation of the existing strategy which will have the elements of design, consulting and technology services enabled by software. Infosys interim CEO UB Pravin Rao said, “During the quarter we responded quickly to the management and board changes through proactive communication with all stakeholders minimising any negative impact to the business and allowing us to deliver growth across all our large industry units.” Infosys had witnessed a major management and board upheaval in August this year with both CEO Vishal Sikka and chairman R Seshasayee resigning from the company. This saw the return of founder Nandan Nilekani as non-executive chairman. Infosys CFO MD Ranganath attributed the stability in OPM to the twin factors of stability and performance. The company has maintained its margin guidance unchanged in the range of 23-25% for the fiscal. The Infosys scrip closed at Rs 926.75 on the BSE on Tuesday, recording a dip of 1.37%.

Brokerage house Credit Suisse in its note said the revenue growth was slightly below its and street estimates, though the margins were higher than expectations. “Better margins, higher other income and lower tax rate led to 4% earnings beat,” it noted. The head count for the second consecutive quarter saw a negative employee addition. Employee strength at the company now stands at 198,440 as versus 198,553 in the previous quarter. During the quarter, Infosys’ performance across business verticals and service lines was a shade below its overall average. The financial services segment recorded a 3% sequential growth, which is showing a signs of revival though there was some softness in others such as manufacturing and hi-tech and retail.

In terms of geographies, Europe recorded the highest sequential growth of 6.6% while North America was 2%. The India geography declined sequentially by 5.2%. Sanjoy Sen, doctoral research scholar, Aston Business School, UK, said, “A refreshed strategy, disciplined operational execution and an unstinted marketplace focus constituted Infosys’ three-pronged strategy to exceed expectations this quarter, despite all the recent internal turmoil, which is indeed complementary.”