Infosys Q3: Company raises FY19 revenue guidance; approves share buyback

Infosys, India's second largest IT services firm, on Friday reported a mixed set of numbers for the third quarter of FY19. While the company disappointed on net profit  and margin fronts, it raised FY19 growth guidance. In sync with expectations, the Bengaluru-headquartered company announced special dividend and Rs 8,260 crore share buyback through open market route.  

The management said Infosys saw strong volume growth and stable revenue productivity despite Q3 being a seasonally weak quarter. It said the company managed currency volatility effectively during the period through hedging strategy.

"We had good growth across geographies and large business segments”, said Pravin Rao, COO. “Attrition declined during the quarter and we are continuing on the path of increased interventions and employee engagements to reduce it further," Rao added. 

Here're the key takeaways from Infosys'Q3 results - 

Special dividend and share buyback

The company's board approved buyback of 10.32 crore shares, comprising approximately 2.36 per cent of the paid-up capital of the company as of December 31, 2018 for up to Rs 8,260 crore. The shares, which will be purchased through the open market route via bourses, will be bought for a price not exceeding Rs 800 per share, it added. 

Also, ADS ( American depositary share) holders are permitted to convert their ADS into equity Shares, and, subsequently, opt to sell such equity shares on the Indian stock exchanges during the buyback period.

This apart, the company also announced a special dividend of Rs 4 per share that would result in a payout of approximately Rs 2,107 crore (including dividend distribution tax). The company has fixed January 25, 2019 as record date for the same and it will be paid on January 28, 2019.  

Financial highlights

The company reported a 29.6 per cent YoY fall in its net profit at Rs 3,609 crore for third quarter of FY19. On sequential basis, PAT (profit after tax) fell 12.18 per cent. In rupee terms, revenues for the quarter grew 20.3 per cent YoY at Rs 21,400 crore. On sequential basis, the numbers grew 3.8 per cent and 2.7 per cent in constant currency terms. Operating profit came in at Rs 4,830 crore, growth of 11.8 per cent YoY and decline of 1.3 per cent QoQ. Basic earnings per share (EPS) saw a  decline of 26.4 per cent YoY at Rs 8.30. On QoQ basis, EPS declined 12.2 per cent.

On a positive side, Infosys revised FY19 revenue guidance in constant currency terms upward to 8.5 per cent-9.0 per cent and operating margin guidance has been retained at 22 per cent-24 per cent. 

Update on Skava and Panaya

The company said it was no longer highly probable that sale of its subsidiaries Kallidus & Skava (together referred to as "Skava”)  would be consummated by March 31, 2019. Hence, they have been de-classified from “held for sale” in accordance with the requirements of IFRS 5. Earlier, it had classified them as "Held for Sale". On de-classification, the company recognised additional depreciation and amortization expenses of Rs 88 crore and a reduction of Rs 451 crore in the carrying value for Skava.

Digital growth and deal wins

Digital revenues for the quarter stood at $942 million (31.5 per cent of total revenues), year-on-year growth of 33.1 per cent and sequential growth of 5.0 per cent in constant currency terms. Also, it signed large deals worth 1.5 billion dollar.

Employee metrics

The company saw a net addition of 7,762 employees during the quarter. Total employees as of December 31, 2018 stood at 2,25,501. Attrition (annualised standalone) during the period stood at 17.8 per cent against 19.9 per cent in the previous quarter. Attrition (annualised consolidated) stood at 19.9 per cent against 22.2 per cent in September quarter. 

Revenues by Business Segments, geographies

Financial services contributed 32.5 per cent of total revenues while retail contributed 16.4 per cent. Energy, Utilities, Resources and Services contributed 12.8 per cent of the revenue. Bsaed on geographies, North America contributed 60.4 per cent of revenue, followed by Europe and rest of the world. India's contribution stood at 2.6 per cent. 

Outlook and view

"Infosys has positively surprised the street on revenue growth for the second successive quarter, and has grown well ahead of TCS again. Higher guidance and robust deal wins signify improving revenue visibility, even as cost pressures are reflecting on margins. We currently have a BUY rating on Infosys with a TP of Rs 795," said Harit Shah, Senior Research Analyst –IT at Reliance Securities. 

Analysts at ICICIdirect said, "Infosys reported mixed bag in Q3FY19 with revenue above our expectations and miss at margins. On the positive side, Infosys has raised its constant currency revenue guidance to be 8.5-9 per cent from 6-8 per cent earlier for FY19E and has maintained operating margin guidance of 22-24 per cent. Further, strong large deal wins, healthy growth in BFSI and improvement in digital revenues was a positive."