Infosys beats estimates but US challenges remain
Subdued demand from US banks an area of concern
Infosys Ltd came out with an upbeat quarterly report card—marginally better than depressed street expectations— but tepid demand from banks, especially in the US, and the management’s reluctance to clarify on the company’s proposed $2-billion share buyback, dampened the initial exuberance of investors in India’s second largest software services exporter.
Infosys’ shares, which were up as much as 3% during early morning trade on Friday on the Bombay Stock Exchange, pared those early gains to close marginally down at ₹972.05, suggesting investors view the latest numbers as a one-off and are still not convinced whether the worst is behind Infosys yet.
In a post-earnings press conference, however, CEO Vishal Sikka struck a confident note and indicated Infosys may further raise its full-year revenue forecast after the September quarter, if the company can sustain its current performance.
“I’m very happy with our results. It was a very strong, broad-based performance,” said CEO Sikka, who completes three years as CEO in August.
“We have said that we are putting a strong focus on execution and the results are reflecting our efforts.” An Infosys executive vice-president, who requested anonymity, struck a more cautionary note, saying it was premature to suggest that Infosys had fixed all the execution challenges that had hampered its growth throughout the course of last year.
“We are in a wait-and-watch mode right now and it’s still early days. If we have a similarly strong quarter in September, we should be in a position to say that the worst is behind us,” said the executive.
In the April-June period, Infosys reported a 3.1% sequential rise in dollar revenue (2.7% in constant currency terms) to $2.57 billion. The strong growth prompted Infosys to raise its dollar revenue outlook for 2017-18 to 7.1-9.1% from its earlier forecast of 6.1-8.1%, thus halting a streak of three consecutive quarters during that Infosys slashed its full-year revenue forecast. Infosys retained its earlier growth outlook of 6.5-8.5% in constant currency terms for the full year.
Net profit declined 0.4% to $541 million in the June quarter, from $543 million in January-March. In rupee terms, revenue declined sequentially by 0.2% to ₹17,078 crore, while net profit declined 3.3% to ₹3,483 crore.
For the first time in at least a decade, Infosys also reported higher margins than larger rival Tata Consultancy Services, with operating margins during the quarter coming in at 24.1%.
A Bloomberg survey of 21 analysts had estimated Infosys’ profit to come in at ₹3,429.60 crore ($531.94 million) on net sales of ₹16,987.9 crore, or $2.64 billion.
Infosys’ performance during the three-month period, which is traditionally a strong quarter for homegrown IT companies, was largely aided by a 4.7% growth from clients in Europe and a 14.2% growth from India—two geographies which together account for a fourth of company’s revenue.
A bigger worry for Infosys, however, is weak client demand from the US, which accounts for 61.1% of revenue.
For Infosys, the US business grew a mere 1.3% sequentially and the BFSI sector (banking, financial services and insurance), which generates about a third of total revenue, too grew less than company’s overall growth, at 2.6%.
Still, Infosys put up a brave face and the sense of relief was palpable among the top management ranks. CEO Sikka, who has struck a defiant and defensive note during the past few quarters, looked relieved and was later even seen joking with reporters after the post-earnings conference.