Beats Street, retains fiscal guidance.
In its first quarterly earnings announcement after the return of N R Narayana Murthy as chairman, IT major Infosys beat Street expectations on Friday with financial numbers that showed it had a fine first quarter (April-June), marked by a 3.7% on-year rise in net profit to Rs 2,374 crore.
Sequentially (quarter on-quarter), profit was down 0.8%, but revenues grew 7.8% (up 17.2% on-year) to Rs 11,267 crore.
In dollar terms, the $418 million profit was down 5.9% on-quarter but up 0.5% on-year, while $1.99 billion in revenues reflected a 2.7% rise on-quarter (up 13.6% on-year).
“Dollar revenue growth was led by the Americas (+6.1% on-quarter) but Europe was down (-5.1% on-quarter), reversing the past three quarters’ trend of the EU doing better than the US,” said Rishi Jhunjhunwala and Girish Ramkumar of Goldman Sachs in a note on Friday.
The steady growth in rupee numbers in the last two quarters prompted Infy to raise its rupee revenue guidance to 13-17% for this fiscal from the earlier guidance of 6-10%.
However, the country’s second largest software firm (in terms of both revenues and market capitalisation) maintained its dollar revenue guidance of 6-10%.
CEO S D Shibulal attributed the “cautiously optimistic” stance to “volatility in the company’s performance in the last three quarters, higher dependence on discretionary spending at 35%, and regulatory changes in Australia, Canada and Europe, that led to a $13.7 million loss on account of cross-currency movements”.
Operating margins rose 9 bps to 23.6%, thanks to currency depreciation despite a decline in realisation due to increase in sales and marketing expenses.
“Margins were flat as better utilisation and currency benefits negated the impact of higher wages, slightly lower billing rates and higher onsite. Clearly, some parts of Infy’s new strategy are working, although numbers could remain volatile in the near term,” said Bhuvnesh Singh of Barclays in a report on Friday.
Infy expects a 300 bps hit to margins in the second quarter on account of wage hikes announced this month. However, there will be no change in hedging strategy. “We are seeing good traction around mobility and cloud,” said Shibulal.
Infy reported 66 new clients during Q1, including large deal wins. Volume growth was strong at 4.1% on-quarter, while pricing declined by 0.7% on-quarter.
Meanwhile, Ashok Vemuri, global head of manufacturing & engineering services and a board member, was appointed interim head of global sales in place of Basab Pradhan who quit this week for a start-up.
Infosys will name a replacement for Vemuri, a contender for the CEO’s post in 2015 when Shibulal retires, in three weeks.
Analysts said the company’s 6.8% on-quarter growth in application development and maintenance and consulting is important, considering disappointing results in these verticals from global leaders such as Accenture, Oracle and SAP.
While utilisation was up 74.3% on-quarter, the management’s goal is to take this number to 80%.
Attrition was high at 16.8%, compared with 16.3% in the previous and 14.9% in the first quarter of the last fiscal.
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