Infosys, the country’s second-largest IT services exporter, may have started to script a slow turnaround story with dollar revenues rising 4.5% sequentially in the June quarter to $2.25 billion, although net profits were down 4.5% at $476 million, hit by wage hikes and visa costs. The operating profit margin (OPM) declined by 170 basis points on a sequential basis to 24% compared to 25.7% at the end of the March quarter. “Pricing is under pressure across verticals,” Pravin Rao, chief operating officer, Infosys, said at a press conference, adding that the environment remained challenging.
The Bengaluru-headquarterd firm upped its revenue guidance in dollar terms to 7.2-9.2% for FY16 against its earlier projection of 6.2-8.2%. “We are revising the guidance largely due to currency movements,” Rajiv Bansal, chief financial officer, said. Infosys retained the constant currency guidance at 10-12%.
Volumes in the quarter grew 5.4% sequentially, the highest in 19 quarters. The 4.5% rise in revenues — the highest in 15 quarters — surpassed analysts’ expectations with the management attributing it to the performance of top accounts, aided by an efficient delivery engine.
The Infosys scrip ended 11.05% higher on Tuesday on the BSE to end at R1,112.65.
Infosys also signed six large deals in the three months to June with a total contract value of $688 million. Rao said the deal pipeline was encouraging.
In a note, following the results, CLSA wrote, “An outstanding beginning indicates the new management is investing in the right areas and has been able to get to the pulse of employees and clients. Addressing these underlying drivers will be a key recovery driver for overall prospects of the firm. Infosys has been able to go back to basics under the new CEO by refocusing on stronger differentiation, greater client engagement and realigning the firm to drive the change.”
Infosys CEO Vishal Sikka, who completes a year in office in August, said, “I believe that this is the result of the initiatives that we have taken. The deep client focus, organisational realignment in delivery, sales and consulting. This quarter also saw deep operational focus as well as widespread adoption of innovation and technologies that has started to bear results now.”
Infosys had struggled in FY15, ending the year with a growth in dollar revenues of just 5.7%. “The initiatives we took are starting to produce results in small and measurable ways. We are still cautiously optimistic,” Sikka remarked. “We are still early in our journey towards becoming a next-generation services company as I have laid out. However, this quarter gives us something to smile about and a good reason to be confident,” Sikka said.
Though, Infosys’ profit performance was in line with market expectations as it was impacted by 250-300 basis points due to wage hike, visa costs and cross currency movement. Infosys CFO Rajiv Bansal said the narrow OPM band of 24-26% was comfortable.
In terms of rupee, Infosys revenue stood at Rs 14,354 crore, recording a sequential growth of 7%, while the net profit reached Rs 3,030 crore, declining by 2.1%. During the quarter, Infosys’ largest market North America grew by 5.1% sequentially while Europe rose by 1.2% and the rest of the world by 9.7%. However, the India market declined by 6.2% on a sequential basis. In terms of verticals, all the segments of Infosys posted strong growth. The manufacturing segment grew by 5.4% sequentially while retail & life sciences rose by 7.3% and financial services by 2.8%.
Said Sanjoy Sen, doctoral research scholar, at Aston Business School, UK, “The current quarterly results of Infosys has demonstrated to the world that it is back on the path to restore its former glory. The several realignments and acquisitions made in the last few quarters to enhance top line and bottom line have finally offset the disruption caused by the exit of its co-founder leaders. In an era where Indian IT companies are undergoing a metamorphosis to reinvent themselves as innovative global solution providers, leveraging state-of-the-art technologies, the benefits of a clear focus and leadership continuity remain critical success factors as demonstrated by Infosys.”
Infosys also had positive news on the attrition front with a decline of 9.2% on a standalone basis to 14.2% in the first quarter of FY16 compared to 23.4% a year ago. It also declined by 7.2% on a consolidated basis to 19.2% from 26.4% a year ago. The total headcount at the end of the quarter was 1,79,523 with a gross addition of 11,889. The utilisation, excluding trainees, expanded sequentially by 160 basis points to 80.2%, from 78.6%.