Infosys cuts revenue growth target for a third time

Q3 profit up 7% to Rs 3,708 cr on improved productivity

Infosys Ltd, India’s second-largest software exporter, cut its annual forecast for a third time in the current financial year as it witnessed slow customer growth, prompting a sell-off at the BSE.
 
The Bengaluru-based bellwether forecast revenue growth of 7.5-8.5 per cent in terms of dollars for FY17. In April, it had guided projected revenue growth at 11.8-13.8 per cent for FY17.
 
In constant currency terms, Infosys said it would grow between 8.4 per cent and 8.8 per cent, against 8-9 per cent projected in October.
 
“The company’s constant currency guidance is a dampener. We expect very low growth for the next two-quarters,” Varshit Shah, information technology (IT) analyst at Mumbai-based Centrum Broking, told Bloomberg. “The stock is not going to deliver any returns for the next six months.”
 
The Infosys stock fell Rs 24.90 or 2.49 per cent, down at Rs 975.15 on the BSE, pulling the IT index down by 1.89 per cent to 9,952.03.
 
“The results were in line with the estimates. I was expecting guidance to be cut by 50 bps (basis points) but it was only 20 bps and raised the bottom end by 40 bps, which is a positive. This indicates one per cent positive growth in the fourth quarter,” said Ravi Menon, IT analyst at Elara Capital. “There is no advantage of giving a higher guidance and then missing. It might lead to loss of faith in the company’s guidance.”
 
While it cut forecast, Infosys third quarter (Q3) results beat the Street estimates with seven per cent growth in profit at Rs 3,708 crore as the company looked at improving productivity to offset slow business uptake in a traditionally weak quarter.
 
The revenue rose 8.6 per cent to Rs 17,273 crore in Q3. Infosys had reported a profit of Rs 3,465 crore with a revenue of Rs 15,902 crore in the corresponding quarter, a year ago.
 
“Taking into account seasonal and other additional headwinds for the quarter, our Q3 revenue performance was broadly in line with expectations. When we entered Q3, we were facing both traditional and seasonal headwinds from furloughs as well as the one-time impact from RBS (ramp-down). Despite that, we delivered Q3 revenue a little below flat, 0.3 per cent in constant currency,” said Vishal Sikka, chief executive officer and managing director, Infosys.
 
In comparison, rival Tata Consultancy Services, which put in place a new management on Thursday, had reported a Q3 profit of Rs 6,778 crore, an 8.7 per cent year-on-year growth on revenue of Rs  29,735 crore.
 
Infosys’ operating margin has marginally improved to 25.1 per cent on better utilisation. “Utilisation was at 81.9 per cent, the highest for Q3 in many years,” said Sikka.
 
He said he was confident of a better Q4, despite the downward pricing pressure.
 
“All four of our new dimensions software-led services had their best quarters. Mana’s cloud adoption has continued to double. We are optimistic about Q4. Downward steady pricing is something that is here to stay and despite that our revenue per employee has gone up to $51,900 because of strong focus on automation and employee efficiency,” said Sikka.