Infosys Q1 net profit rises 23%, ups FY22 revenue guidance to 14-16%

'This has been a landmark quarter for us with the company. Q1FY22 saw the fastest growth in the last 10 years,' says CEO Salil Parekh

Infosys may have missed Street’s net profit expectations for the quarter ended June 2021, but the country’s second-largest information technology (IT) services player on Wednesday raised its revenue growth guidance for financial year 2021-22 (FY22), buoyed by a robust deal pipeline. 

The company now expects its revenue to grow by 14-16 per cent in FY22, up from the earlier estimate of 12-14 per cent. This guidance is ahead of the one-percentage point increase analysts were estimating. Kotak Institutional Equities, for instance, had noted in its results preview: "We expect Infosys to raise FY2022 revenue growth guidance to 13-15 per cent in constant currency from 12-14 per cent earlier.” 

For the first quarter of FY22, Infosys reported a consolidated net profit of Rs 5,195 crore, up 22.7 per cent year-on-year (YoY) and 2.3 per cent sequentially. The firm’s revenue grew 17.9 per cent to Rs 27,896 crore on a YoY basis, while it rose 6 per cent compared to the previous quarter. According to Bloomberg poll, analysts had pegged revenues at Rs 27,655 crore and net profit at Rs 5,372.9 crore for the June quarter. 

The company said its June-quarter revenue growth was the fastest over the last decade. During the quarter, its total contract value (TCV) of large deals was $2.6 billion.

“This has been a landmark quarter for us. Q1 saw the fastest growth in the last 10 years. This gives us confidence to increase our revenue growth guidance to 14-16 per cent,” said Salil Parekh, chief executive officer and managing director, Infosys.

Its US dollar revenue grew at 4.7 per cent sequentially to $3.78 billion. In constant currency terms, it was up 4.8 per cent.

This is the third consecutive quarter when the Bengaluru-based company has done better than TCS, India’s largest IT firm. “Infosys reported robust revenue growth and was above our estimates. Further, the company has again outperformed TCS in revenue growth in QoQ terms. TCS dollar revenue was up 2.4 per cent vs Infosys (revenue), which increased by 4.8 per cent QoQ in constant currency terms,” said a note by ICICI Direct Research.

The note further added: “Infosys has seen healthy revenue growth and a strong deal pipeline. This has given the company the confidence to up the revenue guidance. In addition, the company has consistently outperformed TCS in revenue terms. This prompts us to have a positive view on the stock. We would be revisiting our estimates and target price shortly.”

Suyog Kulkarni, senior research analyst at Reliance Securities, said that based on the current market price, Infosys trades at 22x on FY24 EPS, 5 per cent discount to TCS. “We expect Infosys deserves re-rating, considering industry leading double-digit revenue growth, rising share of digital business, elevated EBIT margin levels, and consistent capital allocation policy,” said Kulkarni.

The Q1 performance was supported by broad-based growth across verticals and geographies. Seven out of its eight verticals clocked 20 per cent YoY growth. The financial services vertical led the surge with a YoY growth rate of 22.6 per cent, followed by retail (22 per cent), lifesciences (21.2 per cent), manufacturing (18.5 per cent), and hi-tech (14.8 per cent). In terms of geography, the US led the growth, at 21 per cent.

The TCV of $2.6 billion had 22 large deals, of which nine were from the BFS segment.

However, attrition at the company continued to go up. For the quarter, attrition was at 13.9 per cent (last 12-month basis), up from 10.9 per cent reported in Q4 FY21. U B Pravin Rao, chief operating officer, said it was a concern, but added that it was a reflection of market conditions. “We are taking steps to keep up with the supply side. We have added 8,000 associates this quarter. We are also increasing our global campus hiring to 35,000. This quarter we have added 10,000 and the rest will be spread across the three quarters,” he said.

The supply-side constraints and efforts of the company to retain employees were evident on margins, which were down 0.8 percentage points sequentially to 23.7 per cent. This was also evident at TCS, which saw its margins impacted due to salary hikes.

The company also clarified that it was working with the government to fix the glitches in the income-tax portal. “We are working to address all the issues related to the I-T portal. Many of the issues raised about the performance and stability have been addressed. On average 8-10 lakh people are coming on the portal. Many of the new functionalities like e-proceeding and TDS returns etc have been released. We have had 10 lakh (1 million) ITR filed today so far,” Rao said.

Ahead of the results, which came post market hours, Infosys stock closed 2.1 per cent higher at Rs 1,576.90 on the BSE. Its ADR was trading 2.2 per cent higher on the NYSE at 9.50 pm India time.