Infosys Q3 net up 25% on tax write-back

Bangalore-based Infosys Technologies, India's second-largest software exporter, historically has a seasonally-weak third quarter. This third quarter was no different.

Though the company registered a net profit (Indian GAAP) of Rs 1,231 crore for the third quarter ending December 31, 2007 "" a 25 per cent increase over the corresponding quarter of the last financial year "" the figure included a reversal of tax provision of Rs 50 crore. 
  

Q3 AT A GLANCE

* Revenue growth: 
17% YoY; 4% Q-Q 

* Net profit growth: 
25% YoY; 12% Q-Q

* Growth outlook for FY08:
19.7-19.9% 

* Revenue crosses 
$3 bn in nine months

WHAT THE FIGURES TELL

* Volume growth of 4% very disappointing 

* Excluding the tax write-back, net profit grew by 7.4% q-o-q 

* But operating margin improved from 31.27% to 32.59% 

* 47 clients added this quarter; closed 9 multi-million dollar deals 

The company's share price lost 1.38 per cent to touch Rs 1,580.10 on the Bombay Stock Exchange.

The top-line (year-on-year) rose 17 per cent to reach Rs 4,271 crore. However, on a sequential (or trailing quarter) basis, revenue increased a mere 4 per cent.

The figure was lower than analysts' expectations of 5 to 6 per cent top-line growth. The company's sequential net profit, on the other hand, rose by 12 per cent. Excluding the tax write-back, it grew by 7.4 per cent.

On the other hand, the growth in dollar terms (US GAAP) was decent at 6.1 per cent. Volume growth, aided by price increases, proved to be the key driver of the top-line.

Infosys managed to surprise the market with its EBITDA (operating profit) margin expanding by 1.3 percentage points sequentially to 32.6 per cent, led by an increase in offshoring and fixed priced contracts, coupled with scale benefits that reduced the selling, general and administration (SG&A) expenses.

Offshore revenues increased from 51.2 per cent in the trailing quarter to 52.2 per cent in the third quarter.

Revenue contributions from fixed price contracts also increased from 29.8 per cent in the second quarter to 32.8 per cent in Q3. Offshore billing rates saw a rise of 1.3 per cent, while onsite rates grew by 1.1 per cent sequentially.

Meanwhile, the earnings per share (EPS) increased to Rs 21.54 from Rs 17.64 for the corresponding quarter in the previous year.

Other income was Rs 158 crore as against Rs 154 crore in the second quarter of FY 2008.

Infosys has forecast a growth rate of 4.8 to 5.4 per cent in revenues and 5.3 per cent in EPS for the fourth quarter, ending on March 31, 2008.

The company's consolidated income has already crossed $3 billion ($3.03 billion) and is set to cross the $4 billion mark in consolidated revenue at the end of the current fiscal (2007-08) under US GAAP "" projecting 35 per cent year-on-year growth.

In rupee terms, the company expects to close the year in the range of Rs 16,627-16,651 crore in revenue, a year-on-year growth rate of 19.7 per cent to 19.9 per cent.

Downplaying the threat of recession, Infosys' CEO S Gopalakrishnan said, "There is no visibility of the IT budget being impacted by a possible recession or slowdown. The environment is positive and growth looks favourable though the macro-environment is challenging. The outsourcing/off-shoring of IT services will continue to grow by 25 to 30 per cent, as maintained by Nasscom."

Infy CFO V Balakrishnan said the growth was aided by various factors. "We have seen a 3 to 4 per cent increase in pricing for new contracts. Even those that have been renewed have been done at higher price point. Contract re-negotiations have been in our favour. The outlook on the pricing front is positive," he added.

Infosys now sits on about $2 billion (Rs 7,933 crore) of cash, which gives it a formidable armoury for acquisition.

In comparison, its ability to invest in organic growth was limited (Rs 325 crore during the quarter). If this cash is not spent on acquisitions, it has to be returned to shareholders.