Infosys Q2 profit up 3.2% to Rs 3,726 cr, guidance for year ahead lowered

Firms cut its growth forecast for the year ahead by 200 basis points, citing a weak second half in FY18

Infosys said second-quarter profit grew 3.2 per cent to Rs 3,726 crore, beating estimates on the back of employee productivity as well as increased business from fixed-price projects to over half of its revenue, giving the firm more leeway in deploying resources, and improving margin to 24.2 per cent.
 

Revenue grew 1.5 per cent to Rs 17,567 crore in the three months to September compared to a year ago. Infosys cut its growth forecast for the year ahead by 200 basis points, much steeper than estimates, citing a weak second half of the financial year. Experts see the return of co-founder Nandan Nilekani on the board as fuelling up "conservative" guidance in a big way. 

Infosys now expects to grow 5.5 to 6.5 per cent in constant-currency revenue for FY18, as against its April forecast of 6.5 to 8.5 per cent.

“Infosys cited traditional seasonality which could lead to softer revenue growth in H2 FY18. We expect Tata Consultancy Services to deliver 6.3 per cent constant-currency revenue growth for FY18 and hence Infosys constant-currency revenue growth guidance is not materially different from its peer,” said Madhu Babu, analyst at Prabhudas Lilladher.  “We believe that the founder returning to the board must have also led to a return of conservatism on the guidance front.”

In the six months to September, Infosys added Rs 554-crore revenue or just 1.6 per cent over the Rs 34,091 crore racked up in the same period last year. In dollar terms, it added $291 million in the same period.

Infosys said 11 per cent of its revenues came from digital or new technology services and new platforms such as Nia, Panaya, Skava, and Edge. Analysts said a faster growth on digital technology front would help Infosys catch up with global peers such as Accenture. 

Cross-town rival Wipro said 24.1 per cent of its revenues came from digital technology services. 

Nandan Nilekani. Photo: Saggere Radhakrishna

“I am not surprised with these (revenue guidance) numbers because the scenario in the Indian IT industry has not changed. They are taking the right step needed now. Having said so, there is a need to improve the transformational (digital) component of the revenue,” said D D Mishra, research director, Gartner. 

Net margin improved to 21.2 per cent on the back of higher use of employees and shifting of more work to offshore locations such as India. For the first time, more than half of Infosys revenues came from fixed-price projects allowing the firm flexibility to deploy resources.

Infosys saw a net decline in its employee base for the second quarter in succession. It saw workforce drop by 113 people on higher attrition, taking the total headcount to 198,440. 

“We do not expect a major revision in consensus estimates as the Street is already factoring a modest growth for FY18, closer to the lower end of the guidance,” said Sanjeev Hota, assistant vice-president, research, Sharekhan. 

“Stock is trading at around 13 times the company's one-year forward earnings, which is at steep a discount to peers like TCS with similar growth profile.” 

The company had reported a net profit of Rs 3,606 crore on revenue of Rs 17,310 crore during Q2 last year.