Infosys posts higher-than-expected Q2 profit; keeps annual sales growth outlook

By Nivedita Bhattacharjee and Anya George Tharakan

BANGALORE (Reuters) - Infosys Ltd wants to revive growth through automation and artificial intelligence, its chief executive said on Friday, boosting investors' confidence in India's second largest IT exporter after it posted a forecast-beating quarterly profit.

Chief Executive Vishal Sikka was brought in earlier this year to chart a new strategy for Infosys, once a trendsetter for India's more than $100 billion IT outsourcing industry but which has struggled in recent years to retain staff and market share.

Infosys often appeared torn between chasing high-margin projects and low-margin bread-and-butter IT deals. Sikka, however, said Infosys' future now lay in new technologies, and that it would look into acquisitions to expand into those areas.

"We believe we can get back to that consistent profitable growth as well as achieve great growth and once again become a bellwether of the Indian IT industry," Sikka told reporters at the company's sprawling Bangalore headquarters.

"Each of our services will be renewed on the basis on innovation, on the basis new technologies like automation, artificial intelligence-based technologies ... there can be a next generation services company that we can transform into."

Investors cheered Sikka's plans, helping to send Infosys stock up by as much as 7.1 percent on Friday in Mumbai, outpacing the benchmark BSE Sensex which was down nearly 1 percent.

The stock is also on track to post its biggest single day gain in more than a year after Infosys posted a higher-than-expected 28.6 percent rise in its second-quarter net profit and unexpectedly announced it was issuing bonus shares and an interim dividend.

"This is exactly the kind of technology leadership we had been saying Infosys needs. We had anticipated a confident Infosys under him and that seems to be coming through," said Ravi Menon, associate vice president at Centrum Broking Ltd.

The shift into artificial intelligence and automation would be a leap for Infosys, which currently offers services that include remotely managing computer networks and writing software code.

Infosys has not done a large acquisition since it was founded in 1981 by seven engineers who pooled $250. The company has cash and cash equivalents of about $5.4 billion at the end of September, its earnings statement shows.

Tech firms including Google Inc , Facebook Inc and Microsoft Corp have pursued artificial intelligence to analyse the data and improve computers' ability to recognize faces, objects or learn languages.

STAFF EXITS

Infosys, which makes more than two-thirds of its sales from clients in the United States and Europe, said net profit in the quarter ended September rose to 30.96 billion rupees ($506.25 million) from 24.07 billion rupees in the same year-ago period.

Analysts, on average, were expecting to post a 29.20 billion rupees quarterly profit, according to Thomson Reuters data. The company maintained its forecast of 7-9 percent sales growth for the year ending in March 2015, meeting analyst expectations.

Revenue during the quarter rose 2.9 percent to 133.42 billion rupees ($2.18 billion).

Infosys provides IT services to western clients including BT Group, Bank of America and Volkswagen. The company added 49 new clients during the September quarter, including a multi-year contract with Daimler AG.

Annualised staff attrition rate at Infosys rose to a record 20.1 percent in the September quarter. Chief Operating Officer UB Pravin Rao said this would come down in the next couple of quarters to 13-15 percent, which is the industry average.

"If Sikka is able to retain employees and use some of the cash for an acquisition, investor confidence in him and the company will go up significantly," said RK Gupta, managing director of Taurus Asset Management, which owns Infosys shares.

"I really think he will be able to deliver."

($1 = 61.1600 rupees)

(Additional reporting by Devidutta Tripathy and Abhishek Vishnoi in MUMBAI; Writing by Sumeet Chatterjee; Editing by Miral Fahmy)