In­fosys: Sur­prises ga­lore in Q3

Smart rise in dig­i­tal rev­enues, steady ad­di­tion of large clients big pos­i­tives

The Hindu Business Line - - IT & TELECOM - K VENKATASUBRAMANIAN

In­fosys sprang mul­ti­ple sur­prises in the De­cem­ber quar­ter, by de­liv­er­ing faster rev­enue growth than TCS, and also upped its FY19 guid­ance sig­nif­i­cantly. The num­bers are heart­en­ing for in­vestors, es­pe­cially as the third quar­ter is usu­ally a weak one for IT ser­vices play­ers. An open mar­ket buy­back of shares at a max­i­mum of ₹800 apiece may evoke a pos­i­tive re­ac­tion from the mar­kets.

Ro­bust in­crease in dig­i­tal rev­enues, steady large-sized client ad­di­tions, and trac­tion in the key fi­nan­cial ser­vices seg­ment are some key pos­i­tive take­aways for In­fosys dur­ing the quar­ter.

On a year-on-year (y-o-y) ba­sis, the com­pany re­ported a dou­ble-digit growth of 10.1 per cent, on a con­stant cur­rency ba­sis in dol­lar terms, after a gap of 10 quar­ters.

Dur­ing the third quar­ter, the com­pany’s rev­enues rose by 2.2 per cent se­quen­tially in dol­lar (From left) U B Pravin Rao, COO; Salil Parekh, CEO and MD; and Jayesh Sanghra­jka, in­terim CFO, In­fosys ad­dress­ing a press con­fer­ence at the Elec­tronic City cam­pus in Ben­galuru on Fri­day

terms (2.7 per cent in con­stant cur­rency). TCS’ rev­enues grew by 0.7 per cent se­quen­tially in the De­cem­ber pe­riod. The only damp­ener for In­fosys, if at all, was the slip in op­er­at­ing mar­gins. But In­fosys’ op­er­at­ing mar­gin of 22.6 per cent is still healthy and in line with the com­pany’s pre­ferred band of 22-24 per cent. TCS too had wit­nessed some ero­sion, with its mar­gins com­ing in at 25.6 per cent, down se­quen­tially.

Rev­enues de­rived from dig­i­tal of­fer­ings grew by a ro­bust 33.1 per cent y-o-y, and now ac­count for 31.5 per cent of the over­all pie, up from 26 per cent in the same pe­riod last year. The

com­pany has steadily climbed the dig­i­tal lad­der and has been able to tap sig­nif­i­cantly into client spends in this area.

The fi­nan­cial ser­vices ver­ti­cal, which ac­counts for 32.5 per cent of In­fosys’ rev­enues, grew at a healthy 3 per cent se­quen­tially, faster than the com­pany’s over­all rev­enue rate. Man­u­fac­tur­ing and en­ergy and util­i­ties seg­ments grew at a much faster clip.

Buy­back and out­look

In­fosys added one cus­tomer in the $50-mil­lion band and nine in the $10-mil­lion cat­e­gory dur­ing the quar­ter.

Over­all, the com­pany has wit­nessed fairly bal­anced growth dur­ing the pe­riod. By in­creas­ing its guid­ance for rev­enue growth for FY19 to 8.5-9 per cent from 6-8 per cent ear­lier, In­fosys looks set to match or ex­ceed trade body Nass­com’s pro­jected rate for the in­dus­try of 7-9 per cent.

Though an up-move is pos­si­ble in the near term, any sig­nif­i­cant re-rat­ing in the stock would de­pend on mar­gins im­prov­ing or stay­ing steady and not get­ting eroded as the com­pany chases large deals and rev­enues.

With TCS look­ing all set to record dou­ble-digit growth for FY19 and the likes of HCL Tech­nolo­gies too likely to do the same, the out­look for the IT ser­vices in­dus­try looks steady for the fore­see­able fu­ture, a stark change from the pes­simism that was preva­lent in 2017.

SOMASHEKAR G R N

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