Five takeaways from Infosys' June quarter numbers

Its first non-founder boss helped it win more large deals in the first quarter, thus helping the shares surge 11%

Irrespective of the fact that TCS has now overtaken Infosys as a bellwether stock, one of most awaited results in the market is that of Infosys. Though the company reported lower profit growth during the June ending quarter its stock has zoomed in the bourses and are presently trading nearly 10% higher.

Here are five key takeaways from Infosys’ results:

1) Reported net profit fell by 2.16% to Rs 3,030 crore mainly on account of lower other income. Operating profit posted by Infosys was Rs 3,447 in June 2015 as compared to Rs 3,449 crore in March 2015. However, lower other income of Rs 758 crore as compared to Rs 881 crore in the previous quarter resulted in the drop in net profit. Marginally lower effective tax rate in June 2015 could not prevent the company from reporting a lower profit in June 2015.

2) What has taken the market aback is the sharp improvement in volume growth. Infosys posted its highest volume growth in 19 quarters of 5.4% on a quarter-on-quarter basis (QoQ). Commenting on the volume growth U.B.Pravin Rao, COO of Infosys said “The organization realignment made earlier this year for deeper client and operational focus has resulted in strong volume growth.”

3) Importantly this volume growth is likely to continue going forward as the company has increased its guidance for the year. In dollar terms revenue has been revised from a band of 6.2- 8.2% to 7.2-9.2%. In constant currency terms revenue are expected to increase by 10-12% and in rupee terms the company expects revenue to grow by 11.5-13.5%.

4) On the margin front the company has taken a beating at the operating margin level which fell by nearly 200 basis points from 26.9% to 24.9% on account of higher wages and visa cost.  Though the company reported a 5.4% growth in volume lower pricing eroded the volume benefits with pricing witnessing an erosion of 2.2% in offshore business and 0.3% in onsite business, resulting in a composite loss of 0.7%. This is on account of continued headwinds in traditional business. Rupee depreciation also impacted margins by 60 basis points.

5) The key to Infosys’ numbers is what the management feels will be the road ahead. In its post results interaction the company said that it is on the path to reach a target of $20 billion by 2020. The company wants to reach an employee productivity of $80,000 by 2020. Infosys’ management said that margins will improve going forward if the volume growth, utilisation and pricing remain strong.

What is also noteworthy is that attrition rate has steadied at 14.2% as compared to 23.4% in the same quarter last year. Vishal Sikka seems to have convinced his employees to stay back, irrespective of that investors at least are convinced that the company is now in good hands.