Moneycontrol
Jan 12, 2018 05:32 PM IST | Source: Moneycontrol.com

Infosys to see muted growth in next 2-3 quarters; here are 7 takeaways from Q3 results

The net profit rose higher largely led by lower tax expenses but analysts’ are hopeful for things to start improving in the next 2-3 quarter, suggest experts.

Kshitij Anand @kshanand

After an in-line number results from Tata Consultancy Services, Infosys too failed to spring a surprise in the December quarter.

The net profit rose higher largely led by lower tax expenses but analysts’ are hopeful for things to start improving in the next 2-3 quarter, suggest experts.

Dipesh Mehta, IT Analyst at SBICAP Securities in an interview with CNBC-TV18 who maintains a buy rating on Infosys with a target of Rs1,150, said that numbers were a tad lower than his estimates.

“EBIT margin was largely in line with estimates. The guidance was also largely with estimates. The numbers are broadly in line. They look soft because if BFSI related weakness which is more of a seasonal factor. We see things to start improving in next two quarters,” he said.

Apurva Prasad, Research Analyst, HDFC Securities maintains a neutral rating on Infosys with a target price of Rs1040, but will await for the analyst call before changing estimates, he said in an interview with CNBC-TV18.

In terms of growth, Infosys growth will remain lackluster for the next 2-3 quarters. The key number to track would be digital services which would be a growth driver for Infosys and industry, he said.

We have collated a list of top seven takeaways from Infosys Q3 results:

Net Profit:

Infosys, the country's second-largest software services provider, has reported profit growth of 37.7 percent at Rs 5,129 crore for the quarter against Rs 3,726 crore reported in the previous quarter due to lower tax expenses. The net profit was higher than CNBC-TV18 estimates of Rs3,609 crore.

The operating profit rose by 1.7 percent on a sequential basis to Rs4319 crore for the quarter ended December 2017 but slipped marginally by 0.4 percent on a year-on-year (YoY) basis.

“Our operating margins were stable on the back of broad-based improvement in operational efficiency parameters. Our cash generation continued to be robust during the quarter,” said M.D. Ranganath, CFO at Infosys.

“We successfully executed the share buyback of Rs13,000 crore in line with our capital allocation policy,” he said.

Revenue:

Dollar revenue growth at 1 percent and constant currency revenue at 0.8 percent QoQ. Dollar revenue and constant currency revenue were estimated to grow 1 percent each QoQ.

Q3 revenues grew year-on-year by 8.0% in USD terms; 5.8% in constant currency terms and 3 percent in rupee terms to Rs17794 crore for the quarter ended December 2017.

“It is a privilege for me to be appointed as the CEO & MD of Infosys, helping our clients navigate the digital future and employees build new skills and capabilities. Our Q3 performance is strong. We had 8% year-on-year growth and 24.3% operating margin with US$ 593 million of free cash flow.” said Salil Parekh, CEO & MD.

“We are progressing towards stability and are well positioned to serve our clients in the new areas of demand” he added.

Margins:

EBIT margin was at 24.3 percent for the quarter, better compared to 24.1 percent expected by analysts.

The outlook for FY 2018:

The Company’s outlook (consolidated) for the fiscal year ending March 31, 2018, under IFRS, is as follows:

Revenues are expected to grow 5.5%-6.5% in constant currency

Revenues are expected to grow 2.1%-3.1% in INR terms based on the exchange rates as of December 31, 2017.

Advance Pricing Agreement:

Infosys has concluded an Advance Pricing Agreement (“APA”) with the U.S. Internal Revenue Service (“IRS”). Under the APA, Infosys and the IRS have agreed on the methodology to allocate revenues and compute the taxable income of the Company’s U.S. operations.

In accordance with the APA, Infosys has reversed tax provisions of approximately US$ 225 million made in previous periods which are no longer required (both under International Financial Reporting Standards and Indian Accounting Standards).

Geographical Segment:

North America grew by o.7 percent both sequentially and in constant currency. Europe grew by 5.9 percent sequentially; and 4.7% in constant currency.

India declined by 6.1% sequentially, and 5.9% in constant currency while the Rest of the world declined by 4.6% sequentially; and 4.0% in constant currency.

Industry segment – growth

The FSI grew by 0.3 percent sequentially; and 0.1 percent in the constant currency. MFG & Hi-Tech grew by 0.1% sequentially; and declined by 0.1% in constant currency.

RCL grew by 1.4% sequentially; and 1.2% in constant currency while ECS grew by 2.6% sequentially; and 2.5% in constant currency.
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