Infosys meets Street expectations; raises revenue guidance

Infosys, the country’s second largest software services exporter, reported double-digit revenue growth for the fourth consecutive quarter on Friday, with revenues growing by 9.9% year-on-year in dollar terms and 11.4% in constant currency in the September quarter. Infy’s performance is in stark contrast to its larger peer Tata Consultancy Services (TCS), which reported weak numbers for the second consecutive quarter. Infy’s current growth trajectory is expected to sustain, given that the company has also revised the lower end of its revenue guidance upwards to 9% from 8.5% earlier. The company’s revenue guidance stands at 9-10% now, against 8.5-10% given in the previous quarter, which itself was bumped up from the earlier guidance of 7.5-9.5%.

The company has also signed large deals worth $2.8 billion, which is the highest so far.

The management conveyed that the large deals not only accounted for new contracts, but also renewals. The company had exited FY19 with total contract value of $6.28 billion.

The company’s operating margin during the quarter was 21.7%, a sharp 120 basis points higher compared to 20.5% in Q1FY20. Infy’s performance on revenues and net profit was in line with Street estimates, while it beat expectations on operating margins. Analysts believe the margin beat should drive up current consensus estimates for the full year. Digital revenues — which now account for 38.3% of total sales — grew by 38.4% y-o-y and 10.6% sequentially in constant currency terms. For TCS digital revenue forms 33.2% of the total and has grown 27.9% on a y-o-y basis in the second quarter. Commenting on the company’s performance in the September quarter, Salil Parekh, CEO of Infosys, said: “Infosys has delivered another strong quarter and double digit revenue growth for fourth consecutive quarter. Our performance was robust on multiple dimensions — revenue growth, digital growth, operating margins, operational efficiencies, large deal signings and reduction in attrition”.

While the company exited the September quarter with operating margins at 21.7%, the management has maintained that for the full year the margin guidance at 21-23%. Commenting on the margins, Nilanjan Roy, CFO, Infosys said, “We saw expansion in operating margins during the quarter driven by improvement in operational parameters and cost efficiencies”. The company completed its share buyback of Rs 8,260 crore on August 26, 2019. With this the company completed the additional capital return programme of upto Rs 13,000 crore announced in April 2018.

Both in terms of geography and verticals, Infosys has reported healthy double-digit growth year-on-year in constant currency. For instance, the communications vertical has grown by 19.2% in constant currency year-on-year, energy, utilities, resources & services grew 19.1%, manufacturing grew by 16.9% while hi-tech grew by 11.7%. Even geographically, the company reported double-digit growth across regions.

Attrition though remained elevated at 21.7% (annualised consolidated) in the September quarter, was lower compared to 23.4% in June quarter and at 22.2% in quarter ended September 2018. Pravin Rao, COO, Infosys, said, “We are especially pleased by the reduction in attrition driven by our focus on enhanced employee value proposition”.