Infosys beat street expectations on Friday with the third quarter consolidated net profit rising 5 percent as against estimated growth of 1.9 percent. Profit increased to Rs 3,250 crore in the quarter ended December 2014 compared to Rs 3,096 crore in previous quarter.
The company was able to match expectations on dollar revenue front, which rose by 0.77 percent to USD 2218 million from USD 2201 million QoQ. The consolidated EBIT margin stood at 26.74 percent.
Nilesh Shah, MD & CEO of Envision Capital, said the numbers are bang in line with expectation, and thus are a sigh of relief for the markets.
The management has maintained its guidance at 7-9 percent for FY15, which propelled the stock up 5 percent.
Ahead of the result the Infosys stock faced extreme volatility, falling and rising by 1 percent in matter of seconds. Shah was however not too concerned about the behaviour as the decision to change time to declare results in mid-market hours was giving traders time to play with the stock. Traditionally, Infosys had declared quarterly numbers in pre-market hours.
Shah feels the road to recovery is still a work in progress for Infosys because margins are something which the company has always excelled at. “They know how to pull the right lever. So clearly for the last quarter as well as this quarter, it is clearly the improvement in utilisation, which has been driving margins,” he said.
He thinks the company probably still has one-two more quarters to fully utilise this lever and therefore still expand margins a little bit but clearly the thing to watch out would be dollar-revenue growth guidance. “That is clearly the most important variable, which essentially can be a game changer for Infosys,” Shah said.
He feels the company needs to have an extremely good fourth quarter to sustain the guidance. “Clearly from an operating perspective, these are definitely good numbers whether it is in terms of volume growth, utilisation, all these parameters and on top of that you have the new CEO who is coming out and saying that the response to their strategy has met with a good initial response from the customer. So all in all a good set of numbers, good set of guidance and a good set of words as well.”
He however feels attrition at 20.4 percent is the only negative factor.
Dipan Mehta, Member of BSE & NSE, expects the third quarter to be complicated for the entire IT sector because of the currency headwinds.
Discussing Q3 results, Mehta said investors may again migrate to Infosys, if other players fail to meet expectations. “The volume growth is the real eye opener here because that long-term has to be the real trigger for the IT industry and Infosys per se,” he said.
He thinks the statement made by Vishal Sikka has been well received and making a difference. “The vision that the CEO has for the company is very powerful and they are having a differentiated strategy in the industry. If that succeeds, then their growth rates, eventually 2-3 years down the line, could be significantly higher than the industry’s,” he feels.
He expects the next quarter to be also good for the company. “On the whole I think it is a great beginning to the earnings season where everybody was saying it would be quite dismal. This will certainly lift the spirits in the market and the sector as a whole.”
Hugh Young, Managing Director, Aberdeen Asset Management Asia, said the numbers are definitely a relief. “It is good news because everyone has been worried about the changes going on in Infosys. There is concern of course that one quarter numbers are literally bad, so maybe one can read too much into them but it certainly is a relief for quite a lot of shareholders.”
Sandip Agarwal, IT Analyst, Edelweiss Financial Services, expects a 1 percent cut in the guidance estimates as Infosys earlier used to change it based on the last day of the quarter exchange rate but this time they have maintained it at September 30.
“It should be actually 8 percent in top-end should come down to 8 from 9 if we take it for December 31. However Sikka mentioned that we do not want to get into the currency thing we are giving this guidance on September 30 constant currency number. So, that was also inline with expectation because if you see there as been a huge movement in the currency in last one quarter,” he said.
He thinks the real challenge for the company would be to check attrition, which will help in improving the utilisation. “It will reduce replacement cost significantly which will enable margins to improve. It will help the company to get new business because if attrition is low then the number of people who are leaving from projects also comes down. So clients get more confidence,” Agarwal said.
Ahead of the numbers, Ankit Pandey, IT Analyst at Quant Broking, had said he expects the margins to be relatively flat and maintain a conservative view on the stock.
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