5 takeaways from Infosys Q3 results

Infosys has not just beaten market estimates but also revised its guidance upwards

In a market which has been in the grip of bears, Infosys’ stellar results brings in hope of growth moving forward. The company not only beat market estimates but revised its guidance upwards.

We look at five key takeaways from Infosys’ December quarter numbers.

1) December 2015 quarter saw Infosys’ revenue increase by 1.7 per cent over the September 2015 quarter and 15.3 per cent over December 2014 quarter in rupee terms. In US dollar term, growth was at 0.6 per cent sequentially and 1.1 per cent in constant currency terms. YoY growth was recorded at 8.5 per cent in dollar terms and 12.5 per cent in constant currency. Importantly, volume showed a growth of 3.1 per cent on sequential basis.

2) However, a closer look at the revenue breakup shows some stress in various geographies. Revenues from North America declined by 0.5 per cent in constant currency but Europe grew by 3.9 per cent and rest of the world declined by 0.3 per cent in constant currency. The bright spot was India which posted a growth of 24.3 per cent over September 2015. Revenue drop in US could be perhaps due to holiday season in the country. One would have to wait for a few quarters more to see if the direction has changed for the worst or if this was a temporary dip.

3) Healthy volume growth, addition of new employees and cost control saw margins of Infosys improving to 24.9 per cent against consensus of 24.7 per cent. But realisations dropped by 2.5 per cent during the quarter which impacted margins by 1.1 per cent. Infosys has said that less working days and investments on additional trainees have resulted in softer pricing. Volume growth has been achieved despite lower utilisation rate. Utilisation including trainees has fallen from 75.4 per cent to 74.2 per cent while excluding trainees has dropped from 81.3 per cent to 80.6 per cent sequentially. Utilisation stood at 82.7 per cent in December 2014. Holidays could have resulted in lower utilisation rates. The company admits that there is some scope for improvement in the utilisation rate going forward.

4) An important feature of December quarter numbers is the drop in attrition rate. Standalone attrition rate has come down to 13.4 per cent as compared to 14.1 per cent in the previous quarter while consolidated attrition rates fell to 18.1 per cent as against 19.9 per cent. Attrition rate has been coming down from 22.9 per cent in March 2014.

5) Markets have positively responded to the December 2015 results due to the revised guidance announced by the company. Infosys said that its revenue is expected to grow between 12.8-13.2 per cent in constant currency and 8.9-9.3 per cent in dollar term.The company says that it is on track to achieve leading industry growth in FY17, which signals a steady growth rate. Infosys is on the verge of cracking a $600 million deal which will add to its existing deal pipeline of $3 bn.

Change in management and bringing in new blood at the top level combined with a focus on employees and adding value to clients has resulted in Infosys turning the corner. Visibility in revenue and positive guidance ensures better days ahead.