Infosys beats estimates but worst not yet over
Subdued demand from US banks an area of concern
BENGALURU: Infosys Ltd, India’s second-largest software services company, on Friday raised its dollar revenue growth forecast for the financial year after reporting quarterly earnings that were marginally better than depressed Street expectations.
In the April-June period, Bengaluru-based Infosys’s dollar revenue grew 3.1% on a sequential basis (2.7% in constant currency terms) and 6% from a year ago 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%, halting a streak of three consecutive quarters during which Infosys slashed its fullyear revenue forecast. Infosys retained its earlier growth outlook of 6.5-8.5% in constant currency terms for the full year.
“I’m very happy with our results. It was a very strong, broad-based performance,” said Vishal Sikka, who completes three years as chief executive officer in August. “We have said that we are putting a strong focus on execution and the results are reflecting our efforts.”
Investors cheered the upbeat report card initially but tepid demand from banks, especially in the US, for Infosys’s services and the management’s reluctance to amplify on the company’s proposed $2-billion share buyback dampened the initial exuberance of investors.
Infosys shares, which were up as much as 3% during early morning trade on Friday on the BSE, pared those gains to close marginally down at ₹972.05, suggesting that investors view the latest numbers as a one-off and are still not convinced that the worst is behind Infosys.
Net profit declined 0.4% to $541 million in the June quarter from $543 million in January-March, and 5.8% year-on-year. In rupee terms, revenue declined sequentially by 0.2% and 1.8% year-onyear to ₹17,078 crore. Net profit declined 3.3% on a sequential basis and 1.4% year-on-year to ₹3,483 crore.
A Bloomberg survey of 21 analysts had estimated Infosys’s profit to come in at ₹3,429.60 crore ($531.94 million) on net sales of ₹16,987.9 crore, or $2.64 billion.
An Infosys executive vicepresident, who requested anonymity, struck a more cautionary note than Sikka, saying that it was premature to suggest the company had fixed all the execution challenges that hampered its growth throughout the course of last year. “We are in wait-andwatch 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.
For the first time in at least a decade, Infosys reported a higher margin than larger rival Tata Consultancy Services Ltd (TCS), with an operating margin during the quarter of 24.1%.
Infosys’s performance during the three-month period, which is traditionally a strong quarter for homegrown information technology companies, was largely aided by a 4.7% rise in revenue from clients in Europe and a 14.2% increase in revenue from India—two geographies which together account for a fourth of the company’s revenue.
JPMorgan Chase and Co. analyst Viju George, in a post-earnings note, called out Infosys’s disappointing performance in core geographies and markets as a concern.
“What was slightly disappointing to us is the performance of core markets such as US and Europe, which grew just 1.3% and 3.1% in CC (constant currency) respectively (smaller markets such as India and Rest Of the World saved the day, in a manner of speaking). The softness of BFSI (banking, financial services and insurance) at both TCS and Infosys has implications for FY18 growth for these firms as well as for the sector,” George wrote.