Infosys soars on profit beat, guidance

Stock rallies 6.7% as company maintains FY15 dollar revenue growth guidance of 7-9%

Shares of IT giant Infosys witnessed strong buying activity in Friday’s trade after the December quarter earnings of the IT giant more than met the street expectations.

As India’s second largest company beat forecasts on net earnings and margin front, the shares rallied as much as 6.7% after the company announced its Q3 numbers for the fiscal 2014-15.

The stock retraced some the gains to end the session at R2073.6, up R99.05 or 5% on the Bombay Stock Exchange (BSE). The gains were supported by good volume with close to 11.3 lakh shares changing hands compared to last two week’s average of 3.1 lakh shares.

The street’s reaction also seem to commend the company’s decision to maintain its dollar revenue guidance of 7-9% growth for the fiscal although factoring in forex rate (dollar-rupee) as of September 30,2014.

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Some analysts reckoned that the company’s decision to maintain the revenue guidance at September end exchange rate would lead to lower actual growth range as it does not factor in cross currency move.

However, some experts believe that given its performance in the first three quarters of the fiscal Infosys may manage to meet it dollar outlook range in constant-currency currency terms. Most of the analysts expected Infosys to cut the lower end of its expected revenue growth range.

Although the attrition in Q3 came down in absolute basis to 8,900 compared to 10,100 in the previous quarter, the attrition rate inched up marginally to 20.4% from 20.1% earlier.

For the three months to December 2014, Infosys reported sequential dollar revenue growth of 0.8% to $2.2 billion which was closer to street estimates. Even in constant currency terms, q-o-q revenue growth of 2.6% also came in-line the expectations.

The positive surprise in the numbers came from the bottomlin as the IT giant reported a 5% sequential jump in reported profit to R3,250 crore. Even the margins was ahead of expectations; gross margin for the quarter increased by 20 basis points (bps) to 38.7% while operating (ebit) margin expanded by 50 basis points to 26.7%. These are the highest level of margins reported by the company in the last ten quarters. At 4.2%, even volume growth for Q3 was the highest for any quarter in the last three years. The revenue realisation per employee however, dropped by 3.4%.

Infosys management acknowledged North America as its top performing geographical segment as it witnessed 2.1% sequential growth even as Europe and rest of the world (RoW) reported a decline of 2.1% and 2.3% respectively.

However, Europe predominantly accounted for 3% sequential growth in the financial services vertical while the US based banks are quoted to not be spending as aggressively. While insurance and life science sectors were regarded to report healthy deal pipeline, the management acknowledged slow movement in manufacturing, aerospace and energy sectors.

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