Infosys on Monday reported a net profit of $519 million for the three months to September, up 9.1% sequentially, and higher than estimates, reports fe Bureau in Bengaluru. Profits were boosted by forex gains, lower visas charges and a control on costs. While volumes slipped to 3.7% from 5.4% in the June quarter, the operating profit margin rose 150 basis points quarter-on-quarter to 25.5%, lifted by operational efficiencies. However, the stock lost 3.88% with the IT major lowering the dollar revenue growth guidance for FY16 saying these would grow by 6.4-8.4% compared with the earlier guidance of 7.2-9.2%. India’s second-largest IT services exporter predicts a challenging business environment in the second half of the year. Revenues in Q2 stood at $2.39 billion, the highest sequential growth in the last 16 quarters.
Increased spending by clients in the US and large contract wins have helped, though pricing pressures still continued to trouble the sector. Infosys has maintained its constant revenue guidance at 10-12% in dollar terms for FY16.
In the June quarter, Infosys had seen its net profit decline by 4.5% q-o-q in dollar terms. This quarter Infosys rode on five large deals with a combined contract value of $983 million, helping it get back on track. The company attributed the lower volumes to a specific client cancelling a key contract, coupled with weaknesses in the telecom vertical.
In an important announcement, Infosys said CFO Rajiv Bansal was leaving the company and that MD Ranganath will be taking over. Ranganath has been with Infosys for nearly 15 years and in his latest role was responsible for strategic planning and risk management..
The IT major expects the second half of the fiscal to be weaker due to the extended holiday period and certain structural weakness in business verticals such as retail and insurance. In a note, Goldman Sachs said, “Weak 2HFY16 implied run-rate underscores typical seasonal weakness in 3Q/4Q, which has been one of the key concerns, in our view, and suggests growth remains volatile. Management highlighted accentuated weakness in certain clients for a weak 2H.”
Brokerage house JPMorgan in its note said, “Infosys delivered a very strong 2QFY16 print with a strong top-line significantly exceeding expectations.”
It further stated that the new lowered guidance implied flattish quarter-on-quarter revenues at the upper end of the guidance range in the remaining two quarters of FY16, while the lower end implies sequential revenue decline of 2.0% over the next two quarters.
Commenting on the results, Infosys CEO Vishal Sikka said, “We are experiencing a once-in-a-generation opportunity for services companies to help businesses maximise their potential with technology. While results in any one quarter are transitory snapshots of a long journey, we do see our focused execution starting to produce encouraging results for our clients, shareholders and Infoscions.”
In rupee terms, the net profit at Infosys rose sequentially by 12.1% to Rs 3,398 crore at the end of the second quarter while revenue grew by 8.9% to Rs 15,635 crore. Outgoing CFO Bansal said, “Our relentless focus on operational efficiencies has resulted in an increase in operating margins despite higher variable payouts,” adding, “The impact of significant currency volatility was effectively mitigated by our proactive hedging programme.”
During the quarter, Infosys reported an all-round upbeat performance across geographies and verticals. Infosys COO UB Pravin Rao said, “We had strong all round growth during the quarter by recent initiatives around service differentiation improvement in client mining and higher focus on winning large deals.”
The key North America region, which accounted for 63.3% of its revenue, reported a sequential growth of 6.1%, while Europe, which saw a decline in the first quarter, grew 8.3%. Among the industry verticals, all of them were in positive territory. The financial services vertical, which accounts for 32.8% of revenue, grew 5.2% sequentially, the retail and life sciences vertical grew 7.9% and manufacturing grew 5.5%. The company added 82 clients during the quarter with the total number crossing 1,000.
Infosys also showed a marginal improvement on the human resources front with the attrition rate holding steady at 14.1% despite a high gross addition of employees at 17,595. The total employee headcount at the end of second quarter stood at 1,87,976.