Infosys Q1 net up 3.7%, 'more aggressive' in chasing growth
Bangalore: IT major Infosys on Friday posted a near 4 percent increase in its consolidated net profit for the April-June quarter, meeting market expectations, even as the firm maintained a "cautiously optimistic" approach keeping its US dollar revenue guidance unchanged for this fiscal.
The Bangalore-based firm, which last month saw the return of its co-founder NR Narayan Murthy in the backdrop of a below than expected performance in the past quarters, added that wage hikes announced in June would have an impact of about 300 basis points on its margins in the next quarter.
The company's consolidated net profit rose by 3.7 percent to Rs 2,374 crore for the April-June quarter against Rs 2,289 crore in the year-ago period. Its consolidated revenues rose 17.2 percent to Rs 11,267 crore from Rs 9,616 crore in the year-ago period.
Reacting to the results, Infosys shares shot-up by nearly 15 percent in early morning trade to Rs 2,905 on the BSE, one of its highest in almost three months.
"Despite facing an uncertain macro environment, changing regulatory regime and a volatile currency environment, we have done well in Q1 and are cautiously optimistic about rest of the year," Infosys CEO and Managing Director S D Shibulal said.
While, India's second largest software services exporter kept its US Dollar revenue guidance unchanged at 6-10 percent for 2013-14 fiscal, it revised its rupee revenue guidance upwards to 13-17 percent from 6-10 percent earlier on account of depreciation in the Indian currency.
Infosys maintained its "cautiously optimistic" approach due to cross currency movements and regulatory changes in the US, Canada and Australia.
"We operate in an environment which has several challenges. Discretionary spend continues to be under stress. There are regulatory changes happening in various parts of the world. We have seen changes in Canada and as recent as a week back, in Australia. US immigration bill is in progress. We remain cautiously optimistic. We have not revised our guidance," Shibulal said.
This quarter, Infosys lost USD 13.4 million in revenue on account of cross-currency movements, Shibulal added.
On the issue of wage hike affecting margins, Infosys CFO Rajiv Bansal said: "We have announced compensation increases for FY'14 effective July, which will affect our margins in the future quarter."
Last month, it had announced an average 8 per cent hike for Indian employees and about 3 per cent for those overseas.
Infosys said the discretionary spend by clients continues to be under stress, which is also affecting margins.
"Our dependency on discretionary spend actually has gone up. It is almost 34 percent of our revenue. So our dependence on the discretionary spend is high and that continues to be under stress," Shibulal said.
On discretionary spend, Bansal said: "we are not seeing an uptick in this in the market and that is likely to put more pressure on pricing because we have disproportionately higher percentage of our revenues coming from discretionary spend."
In US dollars, Infosys' consolidated net profit rose by 0.5 percent to USD 418 million in April-June quarter this fiscal from USD 416 million in the same quarter of 2012-13. Consolidated revenues rose 13.6 percent to USD 1.99 billion against USD 1.75 billion in the same period last year.
It added 66 clients in the April-June quarter taking the total number of its active clients to 836, which includes 7 large deals.
"There have been strong client additions. We added 66 new clients in Q1. In fact, the largest client we have has grown by 11 percent this quarter and the top 10 have grown by 4 percent this quarter," Shibulal said.
The firm added three USD 100 million clients with the largest additions -18- coming in the USD 1 million bracket.
Its banking software Finacle in the last quarter saw 15 new wins and 14 banks getting activated across the Middle East, Africa, Asia and Central America.
"The cloud and big data business has executed over 100 engagements. Over the last quarter, Infosys won over 15 engagements across cloud services and big data," it added.
Besides, over 25 engagements across various industries and areas like field services, customer engagement and enterprise efficiency, were started in the last quarter.
The company made gross addition of 10,138 employees (net addition of 575) for the quarter taking its total headcount to 1,57,263 as on June 30, 2013.
In terms of revenue break-up based on geographical setting, North America remained the largest revenue generator followed by Europe, India and rest of the world in the first quarter of this fiscal.
On industry-wise revenue break-up, insurance, banking & financial services was the top earner followed by retail & life sciences, manufacturing and energy, utilities, communications & services during the same period.
In revenues based on services, business IT services was the top contributor followed by consulting, package implementation and others besides products, platforms & solutions.
Infosys's cash and cash equivalents stood at USD 4.1 billion in April-June quarter against USD 4.4 billion as on March 31, 2013.
The firm is trying to turn around after its struggling phase with more focus on higher value software and consulting services.
Infosys said it is seeing an uptick in the spending by clients in the analytics business and the deal pipeline in the consulting business is also looking good.
Analysts cheered the results posted by the firm, which was once considered an IT bellwether, but cautioned that the performance cannot be perceived as a breakthrough unless it is consistent for one more quarter.
"The results are looking positive. This is strong growth compared to the past. The company is undergoing restructuring and stabilising. It is getting back on the right footing," Gartner Vice President Ian Marriott told the agency.
While, Kotak Securities Private Client Group Research Head Dipen Shah said the better-than-expected revenue growth resulted in margins coming in slightly ahead of expectations. The company has also increased the guidance on a constant currency basis, which is a positive.
"We expect the company, under the leadership of Mr. Murthy, to take steps to further improve employee engagement. We also expect the company to implement stricter performance measurement methods, which may lead to an improvement in the productivity levels of the company, going ahead," he added.
Angel Broking Research Analyst (IT and Telecom) Ankita Somani said growth during the quarter was across all geographies as well as industry verticals. The company inched up its operating margin marginally after five consecutive quarters of margin decline which is a stable sign.
"But in the next quarter headwind of wage hikes will be coming in which will again impact operating margin negatively. The company has maintained its USD revenue growth guidance at 6-10 percent which we were expecting it to come down to 6-8 percent. The guidance range continues to remain wide due to economic uncertainty," she added.