Strong margins, pumped up volumes help Infosys turn in good Q1 numbers

Jul 12 2014, 01:34 IST
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Infosys MD & CEO SD Shibulal (left) with CFO Rajiv Bansal at the company’s headquarters in Bangalore on Friday. Infosys MD & CEO SD Shibulal (left) with CFO Rajiv Bansal at the company’s headquarters in Bangalore on Friday.
SummaryIT major Infosys on Friday recorded a mere 1% sequential decline in net profit...

IT major Infosys on Friday recorded a mere 1% sequential decline in net profit for the June quarter in dollar terms — surprising the Street which had projected a steeper fall in profitability — riding on the back of higher volumes and employee utilisation rates. Infosys, which registered a net profit of $482 million during the period, was able to sustain profit margins while delivering a 2% sequential revenue growth.

Volumes grew 2.9% for India’s second largest IT services company, which said that an increase in onsite volume, coming after nearly two quarters, pointed to more projects starting onsite. Infosys left its dollar revenue guidance for the fiscal unchanged at 7-9% with the management indicating that demand and pricing would remain stable in the medium term. Infosys shares gained 1% to close at R3325.80 apiece on the BSE on Friday.

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Operating profit margin, lower by 40 basis points at 25.1%, came in as a positive surprise against analysts’ expectations of a drop of 200-250 basis points from wage hikes and higher visa costs.

The IT major attributed this to utilisation level climbing to 80.1% from 76.7% in January-March, and cost optimisation measures kicking in.

The margin would have been closer to the 25.5% reported in the previous quarter if not for an $8-million payment to Infosys Foundation, the company said.

The management, however, signalled that employee turnover was worrisome with attrition at 19.5% compared with 18.7% in the previous quarter and 16.9% a year earlier.

Morgan Stanley said in its report on Friday, “Infosys’ revenues were below our estimates; however, the company surprised the street positively on earnings before interest and taxes (Ebit) for the fifth consecutive quarter. The Ebit margins were stronger than expected (even after adjusting depreciation impact) and was helped by cost optimisation initiatives and improved productivity as per management (utilisation ex trainees up by 320bps quarter-on-quarter).”

JPMorgan noted that while the company handsomely outperfomed on margins, internals of the results reveal a more sobering picture. “Client count in the 100 million plus size is down to 12, and all geographies except US declined QoQ. FY15 dollar revenue growth guidance of 7-9% is retained but this now includes currency lift of 50 bps gained this quarter.” The company's guidance is, however, lower than Nasscom's projection of 13-15% for the Indian IT industry.

Infosys' consolidated net profit for the quarter grew 15.3% to $482 million from $418

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