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Infosys on Friday kicked off the earnings season with a generous Diwali bonus. Irate investors have more than one reason to rejoice as the company has not only reported better-than-estimated earnings in the September quarter, but has also announced bonus issuance of one share for every one held. The company's shares rose 5.6% in early trade, even as the rest of the market was awash in red.
Other than the unexpected bonus issue, Infosys also surprised the market with its operating metrics for the September quarter. The company, which has lagged the industry in dollar revenue growth, reported a sequential increase of 3.1% in its dollar revenues to $2.2 billion.
This, when even the most optimistic estimate had not ventured beyond the 2% mark. In constant currency terms, the revenue growth was 3.9%. The company may have beaten the Street's muted revenue growth estimates by a long shot, but there is no rerating likely for the stock, as Infy has maintained the full year growth guidance at 7-9% unlike its peers who continue to report double digit revenue growth. The industry is expected to grow between 13-15% in FY15, an estimate that Infosys continues to lag.
The sequential growth has largely come from its bread-and-butter business (application development and maintenance). The company has also seen an increase in fixed price projects, which have increased from 40.1% in the June quarter to 41.4% in the September quarter. Sequentially, the share of time and materials projects have fallen from 60% in June to 58.6% per in September.
The total number of active clients have gone up but the company no longer has a single client in the $300 million bucket. During the quarter, the company has signed seven new deals, of which five are in the US.
The big surprise, though, has come on the margins front. Even as sales and marketing expenses rose14.4% year-on-year and 5.8% quarter on quarter, the company's managed to expand margins by 100 basis points sequentially to 26.1%. While 0.3% of the improvement has been due to the rupee's depreciation, the rest of the gains have been driven by better operating metrics and jump in utilisation. Utilisation (excluding trainees) has hit a high of 82.3% in the September quarter, against 80.1% in the June quarter. The company says the pricing environment remains stable.
However, the disappointment comes from the fact that the company has not revised its revenue growth guidance for the full financial year. Given the 3.1% QoQ growth in dollar revenues, the company will now need to do 2% sequential growth for the remaining two quarters to meet the 7% revenue growth guidance. And if it has to do 9% revenue growth for the full year, then the sequential growth would need to be 3.4% in the third and fourth quarters.
