The country's second largest IT company has revised its FY16 dollar revenue guidance to 6.4-8.4 percent from 7.2-9.2 percent, though it has maintained guidance at 10-12 percent in constant currency.
Infosys's second quarter earnings surpassed analysts' expectations on every parameter Monday, underpinned by better operational performance and strong revenue growth.
Net profit increased 12.1 percent sequentially to Rs 3,398 crore, and rupee revenue by 8.9 percent to Rs 15,635 crore. Dollar revenue climbed 6 percent—the steepest in the last 16 quarters--to USD 2.392 billion, and 6.9 percent in constant currency.
According to a CNBC-TV18 poll, profit was estimated at Rs 3,244 crore (up 7 percent) and revenue at Rs 15,210 crore (up 5.9 percent). Dollar revenue growth was seen at 3.6 percent.
The company said dollar revenue growth would have been higher, but for a USD 23 million client terminating a contract.
However, the strong numbers were overshadowed by the resignation of the company’s Chief Financial Officer Rajiv Bansal, a dip in volume growth, a slight uptick in attrition rate and an ESOP that could lead to a 2 percent equity dilution going forward.
"While results in any one quarter are transitory snapshots of a long journey, we do see our focused execution along our strategy starting to produce encouraging results for our clients, shareholders and Infoscions," Vishal Sikka, CEO and MD said in a press statement.
Earnings before interest and tax (EBIT) increased 15.8 percent quarter-on-quarter to Rs 3,993 crore and margin improved by 153 basis points to 25.53 percent, which were ahead of estimates of Rs 3,798 crore and 25 percent, respectively.
The company tweaked its dollar revenue guidance for the full year to 6.9-8.4 percent from 7.2-9.2 percent earlier to factor in a stronger rupee. However, the company maintained its constant currency revenue growth of 10-12 percent for the full year.
Brokerage house JP Morgan retained its overweight rating on the stock, saying the company was beginning to show consistency in operating performance with the second consecutive quarter of strong earnings growth.
At the same time, it expressed surprise at the company retaining its constant currency revenue growth for this year, and said it indicated a subdued second half.
Sikka said he expects some headwinds in certain clients in the October-March period of FY16, which is traditionally challenging for industry. Also, he sees pricing challenges on large commoditised deals.
Per capita revenue increased by 2.6 percent in reported terms and 3.4 percent in constant currency terms.
Relentless focus on operational efficiencies has resulted in increase in operating margins despite higher variable payouts, outgoing CFO Rajiv Bansal said, adding the impact of significant currency volatility was effectively mitigated by proactive hedging program.
According to him, exchange gain for the quarter was USD 800 million.
The IT company has added 82 clients during the quarter, taking total number of clients to 1,011. It has added 3 clients in USD 75 million bracket and 1 client in in USD 50 million bracket.
Infosys has signed 5 large deals worth USD 983 million with TCV during the quarter. Apart from that, it also signed deals with TOMS Shoes, ABB (Swiss-based high-tech engineering multinational), Saks Fifth Avenue (an American luxury retail store chain) and ATP.
In India, the Goods and Services Tax Network (GSTN) has awarded Infosys an Rs 1,380 crore (around USD 210 Million) contract to build and maintain GSTN system for five years, it said.
The company said revenue from North America grew 6.1 percent sequentially (6.2 percent in constant currency), Europe grew 8.3 percent Q-o-Q (5.8 percent in constant currency), India 9.4 percent Q-o-Q (12.1 percent in constant currency) and Rest of the World grew 0.8 percent Q-o-Q (7.1 percent in constant currency).
Among businesses, financial services & insurance segment reported a 5.2 percent sequential growth (6.4 percent in constant currency) and manufacturing growth was 5.5 percent Q-o-Q (5.8 percent in constant currency).
Retail, CPG and logistics business increased 7.9 percent Q-o-Q (8.2 percent in constant currency) and energy, utilities, communication & services segment grew 5.9 percent sequentially (7.8 percent in constant currency).
During the quarter, other income grew by 4.6 percent to Rs 793 crore while total operating expenses (selling, marketing and administrative) increased by 7.5 percent on sequential basis.
Tax expenses surged 18 percent quarter-on-quarter.
Attrition worries resurfaced, with the employee turnover rate inching up to 19.9 percent in the quarter ended September compared to 19.2 percent in June quarter.
A bigger concern could be the attrition in senior management, feels brokerage house Kotak Securities.
The company added 8,453 employees (net addition) during the quarter, and now employs close to 1.9 lakh people.
The company declared an interim dividend of Rs 10 per share.
Additionally, its board has approved 2015 Incentive Compensation Plan, amending the existing 2011 RSU Plan. It also approved issuance of new shares, so as not to cumulatively exceed 2 percent of the shares outstanding, in order to support grants made over time under the 2015 Incentive Compensation Plan, the company said.
It has liquid assets (including cash and cash equivalents, available-for-sale financial assets and government bonds) worth Rs 32,099 crore as on September 30, 2015 compared to Rs 30,235 crore in June quarter.
(Posted by Sunil Matkar)
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