India’s second largest software services firm upped its dollar revenue guidance for FY16, attributing it to the momentum in its high-margin automation and digital technology businesses. Spurred by strong volume growth of 3.1% quarter-on-quarter, Infosys said it hopes to grow revenues by 12.8-13.2% in dollar terms. The Infosys scrip closed at R1,128.70 on the BSE, up 4.28%.
Operating margins came in at 24.8% in what is typically a seasonally weak quarter for IT firms, a shade lower than the 25.5% reported in Q2FY16. Revenues grew at a flat at 0.6% quarter-on-quarter to $2.40 billion.
Analysts at JPMorgan said Infosys had delivered handsomely for the third time in a row despite the high 2QFY16 base, confirming the company’s performance was consistent. The brokerage pointed out that the firm had surpassed industry growth in FY16 itself, target the firm had set itself for FY17.
“Clearly, the tables have turned with Infosys decisively outdoing TCS today. For the first time in at least 18 quarters, Infosys has decisively grown Y/Y ahead of TCS in constant currency revenues (12.5% vs 9.9%),” it said.
CEO Vishal Sikka attributed the quarter’s performance to the “creative confidence blossoming” within the company. The IT major had embarked on an initiative called Aikido — a strategy put in place by Sikka in August last year — to focus on design thinking, artificial intelligence and an IP-led approach. “It seems to be working,” Sikka said on Thursday. “We are on track to achieve industry-leading growth in FY17.”
Infosys, which has been trailing TCS on numerous parameters, appears to be catching up. In FY16 so far, revenue growth at Infosys has outpaced that of TCS in each of the three quarters.
The management observed the impact on margins of the visa fee hike by the US government would be modest at 30 basis points.
It added in the long run it would look at a more diversified workforce with greater local presence in developed economies. The headcount indices for Infosys showed a positive traction once again with the attrition level at 18.1% compared with 19.9% in Q2FY16. The total headcount is now 193,383.
North America, the largest market for Infosys, showed a decline of 0.6% on a sequential basis while Europe grew by 2.1%. The stellar performer was the India market which grew 23.1% sequentially. In the industry segments, the energy and utilities segment grew by 4.2% sequentially, followed by financial services at 2.7%. The manufacturing segment declined by 3.7% while the retail and life sciences segment was down by 0.5%.
Commenting on the results, Partha Iyengar, vice-president and distinguished analyst at Gartner, said, “The revision in guidance is a sign of confidence. However, they need to be consistent for at least for two more quarters or so to demonstrate that it is not a a flash in the pan or a temporary phenomenon, then they are probably back in the game.”