The country’s second largest software services exporter Infosys on Friday disappointed the street by missing analysts’ estimates on the profit and operational front.
The country’s second largest software services exporter Infosys on Friday disappointed the street by missing analysts’ estimates on the profit and operational front. However, the company met estimates on the revenue and guidance front. The company reported a 2.11% decline in its net profit at Rs 3,612 crore during the April-June quarter compared to the preceding quarter, mainly due to the fair value reduction of Panaya. Total revenue during the period stood at Rs 19, 128 crore, up 5.8% compared to the preceding quarter. The company recorded a reduction in fair value of disposal group amounting Rs 270 crore with respect to Panaya. It had acquired Israel-based Panaya for $200 million.
“The strong revenue and margin performance in this quarter shows that our dual emphasis on Agile Digital and AI-driven Core services is resonating with our clients”, said Salil Parekh, CEO and MD. “With our Agile Digital business growing sequentially at 8% in constant currency and increase in our large deal wins to over $ 1 billion, we see good traction in the market,” he said. Infosys’ operating margins during the quarter were at 23.7% at the upper quartile of the guidance.
The company said during the first quarter, large deal wins crossed $1 billion, of which over 40% was from the financial services. Infosys for the first time listed its digital revenue separately and said it stood at $803 million, which is 28.4% of the total revenues. The digital revenue grew 8% sequentially in constant currency terms. The IT major was bullish about the recovery it sees in the BFSI segment and the energy and utility segment. However, the company retained its full year guidance in constant currency at 6-8%, with an operating margin guidance retained at 22-24%.
“We had broad-based financial performance on multiple fronts — RoE crossed 25%, free cash flow was up 32% quarter on quarter and operating margins were at the upper quartile of our margin guidance,” said MD Ranganath, CFO. In the quarter, the company witnessed a high attrition rate of over 20%, an increase of 50 basis points, though the utilisation stood at an all-time high of 85.7%. The company had a total employee strength of 209, 905 people at the end of June 30, 2018 with a net addition of 5,798 people. The company said it is adding more local people in the US as per the earlier plan of adding 10,000 local people in that market. Infosys COO UB Pavin Rao said, “The attrition is due to seasonal factors and was in the two-four year experience employee range. It is still higher than the past and we have identified certain measures to tame the attrition.”
“Infosys’ constant currency revenue growth and EBIT margin during the quarter remained in line with our expectations, driven by revenue acceleration in North America. Margins were down 100 bps q-o-q despite rupee benefits, due to wage hike and additional investments in creating digital capabilities. Large deal wins remained robust at $1.1 billion, out of which 40% deal wins in financial services,” said Sanjeev Hota, AVP – research, Sharekhan by BNP Paribas.
“Strong deal wins especially in BFSI along with new client additions in large accounts and improving demand environment is expected to drive the company’s earnings in FY2019/FY2020,” he added. The company’s board also appointed Michael Gibbs as an independent director for three years.