Infosys beats St, scales up full-year forecast

Lodestone aids rise in revenue stock records highest single-day gain

After disappointing the market for eight quarters, Infosys’ results for the quarter ended December, announced on Friday, beat Street expectations in every aspect.

The Bangalore-based company reported 5.7 per cent quarter-on-quarter growth in net profit, well above the estimated two to three per cent growth. It also scaled up its revenue forecast, against an anticipated downward revision. This led to the company stock recording the highest ever single-day gain. After opening about 13 per cent higher on Friday, the stock closed at Rs 2712.60 on the BSE, a rise of 16.9 per cent compared to the previous close. The company’s performance helped raise the BSE IT index 9.3 per cent. It also raised the stock of other companies in the segment such as TCS (3.8 per cent) and Wipro (6.1 per cent).

For the quarter ended December, Infosys reported a net profit of Rs 2,369 crore, against Rs 2,372 crore in the corresponding period of 2011. Revenue rose 12.1 per cent to Rs 10,424 crore. Compared to the quarter ended September, the net profit was flat, while revenue rose 5.7 per cent, driven by revenue accrued from Lodestone, a Switzerland-based management consulting firm Infosys acquired in September. The company said it expected full-year revenue, including revenue to be accrued from Lodestone, at about $7.45 billion, a rise of 6.4 per cent. Earlier, the rise was estimated at five per cent.

POSITIVE NUMBERS

• $ revenue forecast for FY13 revised upward to $7450 mn from 7,343 mn
   
• Promotions to 6,000-9,000 employees
   
• Wage hikes of 2-3% for onsite employees
   
• Strong deal pipeline; 8 large deals with total contract value of $731 mn
   
• Operating margin at 25.69% despite offshore wage hike

The management said the positive performance had resulted from execution of the strategy Infosys had been working on. “The fact that we have performed well in this quarter, despite the uncertain environment reflects the successful execution of the strategy we initiated couple of quarters ago. Besides, some deals we had won in the first and second quarters of FY13 yielded revenues this quarter,” said Chief Executive Officer and Managing Director S D Shibulal, hinting the company could see a turnaround in the third quarter.

He, however, said nothing much had changed in the macroeconomic scenario, adding the broader economic environment remained difficult. “The economic environment continues to be volatile and we are cautiously optimistic for the next quarter,” he said.

In the third quarter, Infosys’ growth wasn’t driven by the top five or 10 clients; it was driven by clients added in the last few quarters.

During the quarter, Infosys added 53 clients, including eight large transformational deals with a total contract value of about $731 million. Despite the challenging scenario, the company managed to secure a pricing rise of about 1.8 per cent, which it said was largely due to a shift in its portfolio mix towards more consultation-driven services.

The company’s volume (billable man hour/quarter) rose 1.5 per cent, despite a large bench (reserved employees not working on any project); utilisation rose to 70.1 per cent. Increasing the wages of its offshore employees in the previous quarter had an impact of 68 basis points on the company’s operating margin, which stood at 25.69 per cent.

Infosys’ performance in the quarter was credible, said Ankita Somani, an IT analyst with brokerage firm Angel Research. “With the current set of results, there seems to be a case to re-rate Infosys and narrow the gap between TCS and Infosys,” she said.

“Infosys results are finally coming closer to reflecting the demand reality, and if this sustains for the next two quarters, it could indicate the worst phase of the company is behind it; it can stand to benefit from the strengthening demand environment,” said Partha Iyengar, country manager (research), Gartner India.