IN­FOSYS DE­LIV­ERS IN-LINE NUM­BERS IN A SOFT QUAR­TER

Panaya drags Q1 prof­its though rev­enue im­proves on the back of large deal wins, good trac­tion in North Amer­ica

Business Standard - - FRONT PAGE - DEBASIS MOHAPATRA & ALNOOR PEERMOHAMED write

In­fosys, In­dia’s sec­ond-largest IT ser­vices com­pany, failed to en­thuse the Street with its num­bers, strength­en­ing the be­lief that the com­pany is yet to re­turn to a sta­ble phase. The Ben­galuru-head­quar­tered com­pany, which a new CEO is lead­ing since Jan­uary this year, mostly de­liv­ered an in­line fi­nan­cial per­for­mance though it missed the es­ti­mates on a cou­ple of pa­ram­e­ters.Its stock rose 1.12 per cent on the BSE.

In­fosys, In­dia’s sec­ond-largest IT ser­vices com­pany, failed to en­thuse the street with its num­bers, strength­en­ing the be­lief that the com­pany is yet to re­turn to a sta­ble phase.

The Ben­galuru-head­quar­tered com­pany, which a new chief ex­ec­u­tive of­fi­cer (CEO) is lead­ing since Jan­uary this year, mostly de­liv­ered an in-line fi­nan­cial per­for­mance though it missed the es­ti­mates on a cou­ple of pa­ram­e­ters.

Its stock rose 1.12 per cent on the BSE. In the quar­ter ended June 30, 2018, In­fosys re­ported ~36.12 bil­lion in net profit, a growth rate of 3.7 per cent com­pared to the year-ago pe­riod. The con­sen­sus an­a­lysts’ es­ti­mate for profit was ~37.41 bil­lion.

Rev­enue for the pe­riod, at ~191.28 bil­lion, was mostly in line with ex­pec­ta­tions, grow­ing 12 per cent on yearon-year. In con­stant cur­rency terms, rev­enue growth was at 6 per cent dur­ing the first quar­ter ended June 2018.

How­ever, se­quen­tially (q-o-q), In­fosys saw a 2.1 per cent de­cline in net profit, which was pri­mar­ily hit by ~2.7 bil­lion re­duc­tion in the fair value of Panaya, an Is­raeli au­to­ma­tion firm ac­quired un­der the pre­vi­ous regime and sub­se­quently put on the block, cit­ing strate­gic mis­match.

On a se­quen­tial ba­sis, rev­enue saw growth of 5.8 per cent.

In con­trast, TCS posted much health­ier growth in the June quar­ter, when its net profit as well as rev­enue grew ahead of the an­a­lysts’ es­ti­mates, at 15.8 per cent and 26.5 per cent on a year-on-year ba­sis, and 6.8 per cent and 6.3 per cent on a se­quen­tial ba­sis, re­spec­tively.

The area of con­cern for In­fosys was the key bank­ing, fi­nan­cial ser­vices and in­sur­ance (BFSI) busi­ness, which saw a 1.5 per cent de­cline even though TCS saw 3.7 per cent growth in the seg­ment, driven by in­crease in spend­ing by key clients in North Amer­ica.

Salil Parekh, CEO and manag­ing di­rec­tor of In­fosys, said the com­pany was op­ti­mistic as far as BFSI was con­cerned be­cause al­most 40 per cent of large deals closed dur­ing the quar­ter came from that seg­ment.

“We are see­ing good trac­tion in the BFSI seg­ment, es­pe­cially in the spe­cialised ar­eas of bank­ing. The US mar­ket is show­ing good growth and we are wit­ness­ing good de­mand from the in­sur­ance seg­ment,” said Parekh.

Ac­cord­ing to Chief Op­er­at­ing Of­fi­cer UB Pravin Rao, a cou­ple of clients in the fi­nan­cial ser­vices space had done in­sourc­ing, which re­sulted in de­cline in rev­enue from the BFSI space.

San­joy Sen, a re­search an­a­lyst and doc­toral re­search scholar at As­ton Busi­ness School in the UK, said: “The In­fosys re­sults de­pict in­ter­est­ing con­trasts with TCS. While TCS has started reap­ing its div­i­dends from a more sta­ble strat­egy, In­fosys is still plagued by the ghosts of its past dis­plays of ‘dy­namism’, such as sig­nif­i­cant write­offs from the ear­lier Panaya ac­qui­si­tion, de­spite lead­er­ship is­sues start­ing to sta­bilise.”

On the op­er­at­ing mar­gin, the head­wind from wage hikes hit In­fosys harder than it did TCS.

Its op­er­at­ing mar­gin for the quar­ter saw a 100 ba­sis point (bps) de­cline dur­ing the quar­ter at 23.7 per cent, com­pared to a 40 bps de­cline by TCS on that front.

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