Infy Q1 uneventful, performance over next 2 quarters to chart direction, say analysts

Revenue in Infosys' largest business — financial services and insurance — de-grew 1.5 percent from growth of 1.1 percent in the previous quarter. The vertical accounted for 31.8 percent of the company’s revenue during the first quarter.

Earlier this week, TCS had signaled a revival in the BFSI business which has remained slow over the past year.

Large deal wins crossed $1 billion, of which over 40 percent was from financial services, Infosys said.

The management said it was still seeing some softness in the financial services clients, while insurers beefing up their backend systems was a strong point.

Drawing a contrast between TCS and Infosys results during the quarter, Sanjoy Sen, Doctoral Research Scholar, Aston Business School, UK said Infosys continues to depend on its global financial services clients.

He said, “TCS appears to have a fairer distribution by industry portfolio, thus appearing to be far more resilient to the volatility in the macroeconomic and business environment. As a result, investors will have to watch the next couple of quarters to be fully convinced that Infosys has completely turned the corner."

The numbers

Infosys retained its annual revenue growth guidance of 6-8 percent in constant currency and operating margin guidance at 22-24 percent.

Net profit for the June quarter fell 2.1 percent to Rs 3,612 crore compared to Rs 3,690 crore in the previous quarter. The previous quarter's profit included a positive impact of Rs 1,432 crore on account of the conclusion of an advance pricing agreement with the US revenue service.

First quarter revenue increased 5.8 percent to Rs 19,128 crore from Rs 18,083 crore in the March quarter.

Analysts polled by Reuters on average expected Infosys to post revenue of Rs 19,093.4 crore, and profit of Rs 3,747.6 crore in the June quarter.

Infosys said the profit was impacted by ongoing negotiations for Panaya, the Israeli software company it put up for sale last quarter. As a result, it recorded a reduction in the fair value of Disposal Group held for sale amounting to $39 million in respect of Panaya.

"Consequently, profit for the three months ended June 30, 2018, has decreased by $39 million," the company said.

Operating margin fell to 23.7 percent from 24.7 percent in the previous quarter.

The fall was attributed to wage hikes that were rolled out to about 5 percent of the workforce in the reported quarter and increased investments in some parts of the business.

The gains from a weaker rupee were entirely offset by some of these factors, leading to a net 100 basis points fall in operating margin.

The digital business grew 8 percent sequentially during the first quarter, compared with 3.6 percent growth in constant currency terms in the March quarter.

The digital business accounted for $803 million, or 28.4 percent of total revenue, during the quarter.

Attrition – cause for worry?

Attrition rose to 20.6 percent from 16.6 percent in the previous quarter.

Infosys said utilisation (excluding trainees) was an all-time high of 85.7 percent in the first quarter.

Chief operating officer Pravin Rao said the company has identified the areas that need to be addressed in terms of employee attrition and some interventions to retain talent.

“We are confident we will be able to bring it under control,” he added.

He said the attrition was partly seasonal, but most of it was in the two to four years experience band, including some high performer attrition.

Infosys' head manufacturing Nitesh Banga and healthcare and life sciences division Sangita Singh had put in their papers during the June quarter.