Infosys heads higher after concluding advance pricing agreement with US IRS

Infosys rose 0.65% to Rs 1,048.10 at 15:00 IST on BSE after the company announced the successful conclusion of an advance pricing agreement (APA) with the US Internal Revenue Service (IRS).

The announcement was made after trading hours yesterday, 9 January 2018.

Meanwhile, the S&P BSE Sensex was down 19.46 points or 0.06% at 34,427.

High volumes were witnessed on the counter. On the BSE, 5.83 lakh shares were traded on the counter so far as against average daily volumes of 2.89 lakh shares in the past one quarter. The stock had hit a high of Rs 1,051.60 in intraday trade, which is also a 52-week high for the stock. The stock had hit a low of Rs 1,034.60 so far during the day. The stock had hit a 52-week low of Rs 861.50 on 22 August 2017.

The stock had outperformed the market over the past one month till 9 January 2018, gaining 3.97% compared with 3.59% gains in the Sensex. The scrip had also outperformed the market in past one quarter, rising 12.74% as against Sensex's 8.15% rise. The scrip had, however, underperformed the market in past one year, advancing 7.29% as against Sensex's 28.87% rise.

The large-cap company has equity capital of Rs 1091.97 crore. Face value per share is Rs 5.

The preliminary discussions with the IRS on the APA were initiated by the company in 2015, followed by multiple rounds of discussions. Under the APA, the company and the IRS have agreed on the methodology to allocate revenues and compute the taxable income of the company's US operations. This agreement covers financial years from 2011 to 2021. The APA will enhance predictability of the company's tax obligations in respect of its US operations.

In accordance with the APA, the company expects to reverse tax provisions of approximately $225 million made in previous periods which are no longer required (both under International Financial Reporting Standards and Indian Accounting Standards). Further, in line with the APA, the company expects to payout approximately $233 million due to the difference between the taxes payable for prior periods as per the APA and the actual taxes paid for such periods. This amount is expected to be paid over the next few quarters.

The reversal of the tax provisions of approximately $225 million will have a positive impact on the consolidated basic earning per share (EPS) for the quarter ended 31 December 2017 by approximately $0.10. Further, on account of the APA methodology, the company expects its overall effective tax rate to be lower by about 100 basis points for future periods covered under the APA.

M. D. Ranganath, CFO said that the company is glad that the APA has been executed in one of company's key markets. The APA provides greater predictability of our taxes and minimizes uncertainties, he added.

On a consolidated basis, Infosys' net profit rose 6.97% to Rs 3726 crore on 2.86% growth in net sales to Rs 17567 crore in Q2 September 2017 over Q1 June 2017.

Infosys is a global leader in technology services and consulting.

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