Infosys Q3 net profit far ahead of street expectations: 5 key takeaways other than earnings

By: | Published: January 12, 2018 4:54 PM

India’s second largest software service provider Infosys posted a 38% rise in net profit to Rs 5,129 crore in the October-December quarter, compared to Rs 3,708 crore in the corresponding quarter last year. While the earnings by itself is important, we bring to you five key takeaways from the company’s board meeting held on January 11-12.

Infosys, US Internal Revenue Service, US operationsInfosys has announced an Advanced Pricing Agreement (APA) with the US Internal Revenue Service (IRS), under which both companies have agreed on a methodology to allocate revenues and compute taxable income of the company’s US operations. (Image: IE)

India’s second largest software service provider Infosys posted a 38% rise in net profit to Rs 5,129 crore in the October-December quarter, compared to Rs 3,708 crore in the corresponding quarter last year. The results were mainly buoyed by reversal of income tax expense provisions of Rs 1,432 crore on US IRS agreement. The company has also maintained FY18 EBIT margin guidance of 23-25% for the year and retained FY18 constant currency revenue growth guidance of 5.5-6.5%, in line with expectations. The event assume significance as it’s the first quarterly earnings reported by the IT behemoth after the appointment of new CEO Salil Parekh who took over the reins of the company from January 2 this year. While the earnings by itself is important, we bring to you five key takeaways from the company’s board meeting held on January 11-12.

Rise in gross client additions

The company’s gross client additions came in at 79 in the December quarter, as compared to 72 in the previous quarter. The resignation of Vishal Sikka had led to a lot of concerns regarding the future direction of Infosys’ client base. The company has a total of 1,191 clients as on December-17.

Attrition reduces marginally

In the quarter under review, annualized standalone employee attrition reduced marginally to 15.8% compared to quarter annualised standalone employee attrition of 17.2% percent in the previous quarter. “During the quarter, we provided compensation increases and higher variable payouts to our employees. Our investments in employees continues to deliver results as reflected in lower attrition,” Pravin Rao, COO observed. The company has also reported a decrease in consolidated annualised attrition to 18.7% in the quarter from 21.4% in the previous quarter.

The digital push

Taking stock of the stellar results, Infosys COO, Pravin Rao said, “Increased adoption of our digital offerings and new services helped stabilize price realization. We were able to grow client relationships across revenue categories.” Notably, the company has registered an increase in client revenues from Europe to 24.4% from 23.2% in the previous quarter. The company also recorded an increase in Consultation, Package implementation and other services at 32.8% in the quarter, from 32.5% in the previous quarter.

Signing of the Advance Pricing Agreement (“APA”) with the US Internal Revenue Service

Infosys has concluded an Advance Pricing Agreement (“APA”) with the U.S. Internal Revenue Service (“IRS”). Under the APA, Infosys and the IRS have agreed on the methodology to allocate revenues and compute the taxable income of the Company’s U.S. operations. This agreement covers financial years from 2011 to 2021. Notably, the company has has reversed tax provisions of approximately Rs 1,432 crore made in previous periods.

Salil Parekh’s take

“It is a privilege for me to be appointed as the CEO & MD of Infosys, helping our clients navigate the digital future and employees build new skills and capabilities. Our Q3 performance is strong. We had 8% year-on-year growth and 24.3% operating margin with US$ 593 million of free cash flow.” said Salil Parekh, CEO & MD said, adding, “We are progressing towards stability and are well positioned to serve our clients in the new areas of demand.”

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