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  1. Infosys puts on a nifty show for 4th quarter in a row

Infosys puts on a nifty show for 4th quarter in a row

Revenue guidance at 11.5-13.5% too above industry average

By: | Bangalore | Published: April 16, 2016 6:36 AM
Infosys Vishal Sikka Infosys, which has been hampered by higher attrition rates in the past, has been able to keep these steady. (Reuters)

India’s second largest IT services exporter Infosys on Friday exceeded market expectations for the fourth consecutive quarter with a 1.7% growth in net profit to $533 million for the three months to March, even as it provided an upbeat revenue guidance for FY17. Volumes for the quarter grew 2.4% sequentially, with a deal pipeline of $757 million.

Infosys has guided for revenues in the range of 11.5-13.5% in constant currency terms for the current year, higher than the industry average set by Nasscom at 10-12%. Even in reported currency terms, the IT major’s guidance has been higher at 11.8-13.8%. For FY16, Infosys reported a consolidated revenue of $9.5 billion, registering a growth of 9.1%. Net profit grew 1.9% to touch $2.05 billion.

Operating margins in the March quarter stood at 25.5%, rising 60 basis points sequentially, with the management indicating it is comfortable with a range of 24-26%. Infosys CFO MD Ranganath said the margin expansion during the quarter was driven by rupee benefits and a higher utilisation level.

The performance has set the stage for the IT major to get into strong double-digit growth mode after reporting single-digit growth in the last two fiscals. In FY15, Infosys reported a revenue growth of 5.6% in dollar terms while in FY16 it was 9.1%. Revenues for the quarter stood at $2.44 billion, up 1.6% sequentially.

Infosys CEO Vishal Sikka said the firm’s foray into newer areas of IT services and continued adoption of automation had helped improve performance while deal wins had also steadily increased. However, he also sounded a note of caution. “Despite these heartening results, they are still based on metrics of the past. The world of our future looks entirely different — it is a world that is being fundamentally reshaped by digital technologies… We are still very much at the beginning of this journey.”

Infosys’ performance has changed for the better after Sikka took over in August 2014. Analysts point out the turnaround has taken place despite the external demand environment not being very conducive for the Indian IT industry and major markets like US and Europe not showing any consistent growth.

Terming the Infosys performance as a turnaround, Arup Roy, research director, Gartner, said, “They are back in the game and executing well. I would say that they are now well aligned with market trends.”

Infosys under Sikka has been able to get better traction in large deals that have consistently been in the range of $500-700 million in the last four quarters. In addition, Infosys has also brought in the fresh perspectives like design thinking, automation and zero distance, which has enabled it to bring in more innovation to the marketplace.

At the same time, pricing pressures remain and Sikka said on Friday prices had been witnessing a secular downward trend for quite some time now. “The only way to counter this will be through the use of technologies like automation and artificial intelligence,” Sikka said.

Infosys, which has been hampered by higher attrition rates in the past, has been able to keep these steady.

“Employee attrition has reduced further in Q4 and is reflective of increased engagement with our people all through the year,” Infosys COO UB Pravin Rao said.

The IT major has also rolled out a salary hike in the range of 6-12% for its India-based employees while for those at onsite locations it will be in the 1.5-2% range.

During the quarter Infosys also promoted 2,147 employees who are below managerial level, taking the total number of promotions in the fiscal to about 8,900 people.

Infosys will also introduce a restricted stock unit plan for its top-level employees, something that will be rolled during the first quarter of FY17.

On campus hires, Rao said, “For the year 2017 we have handed offer letters to around 20,000 people who are expected to join over the year. Lateral hires will be made on a need basis.” In the January-March period Infosys made a net addition of 661 people, taking the total headcount to 1,94,044 people as on March 31, 2016.

In terms of verticals, the financial services segment showed a decline of 0.3% sequentially while the energy and utilities segment showed the highest growth of 4.6%. In terms of geographies, the North America market grew by 0.5% sequentially and Europe by 2.4%.

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