Infosys hikes revenue and margin guidance for FY21

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October 15, 2020 5:00 AM

Infosys said it would increase compensation across the board from January 2021 and would pay out 100% of variable pay this year, which could have some impact on margins going forward.

The pandemic hit Infy’s core business hard, but a sharp 25.4% year-on-year increase in digital revenues saved the day.The pandemic hit Infy’s core business hard, but a sharp 25.4% year-on-year increase in digital revenues saved the day.

Infosys Technologies on Wednesday revised its revenue and margin guidance upwards for FY21, after its stellar performance in the September quarter. Infy’s performance suggests it has returned to industry-leading growth and profitability, with rupee revenues growing by 3.8% sequentially and 8.6% annually in the September quarter and margins jumping by 2.7% sequentially to 25.3%.

Net profit for the second quarter was up sharply by 14.4% sequentially to Rs 4,845 crore, while operating income rose 16.1% to Rs 6,228 crore. The company increased interim dividend per share by 50% to Rs 12. The company also signed large deals worth $3.15 billion during the second quarter.

The pandemic hit Infy’s core business hard, but a sharp 25.4% year-on-year increase in digital revenues saved the day. Digital revenues now account for 47.3% of total revenues. Even as it remains cautious about the future, Infosys now expects revenues in constant currency to grow between 2-3% in FY21 from the earlier estimate of 0-2%. It has also revised its operating margin guidance upwards to 23-24%. Operating metrics in the September quarter remained positive for the financial services, high tech and life sciences verticals, while revenues from manufacturing, retail and energy verticals declined.

Even though discretionary spends remained patchy, companies that were focused on digital transformation, vendor consolidation and cloud were driving growth for Infosys, the company’s top management said on a call.

Commenting on the company’s performance, Salil Parekh, CEO and MD of Infosys said, “Our digital and cloud capabilities combined with intense client relevance are helping us achieve differentiated results in the market as is visible in 2.2% year on year overall revenue growth and 25.4% growth from digital offerings, which now are at 47.3% of revenues.”

Strategic initiatives taken by the company in March, coupled with a tight control on discretionary spends like travel, gave a boost to margins. Currently 99% of Infy’s employees are working from home, which also helped save costs.

Infosys said it would increase compensation across the board from January 2021 and would pay out 100% of variable pay this year, which could have some impact on margins going forward.

In constant currency, Infosys reported a revenue growth of 4% sequentially and 2.2% year-on-year. While the company beat consensus estimates on revenues marginally, the beat on profitability was driven by the sharp improvement in operating margins, which went up by 2.7% sequentially. “Our relentless efforts on cost optimization and strengthening operational efficiencies helped by certain cost deferrals led to 270 basis points sequential improvement in operating margin to 25.4% and a 300 bps improvement in H1 margins,” said Nilanjan Roy, CFO. Infy’s free cash flows too grew significantly in the first six months driven by focus on liquidity and cash management.

During the September quarter, voluntary attrition (annualised) declined to 7.8% from 11.7% in the June quarter of FY21 and 18.3% in the comparable quarter last year. Utilisation too picked up in the September quarter to 80.6% from 78.2% in the June quarter. However, utilisation is still lower compared to September 2019 levels of 81.6%.

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