Infosys boosts guidance after strong showing; Q2 net profit rises 11.7%

On the back of strong demand-led digital transformation, Infosys on Wednesday raised its revenue growth guidance for the financial year 2021-22 to 16.5-17.5 per cent, from the earlier 14-16 per cent.
 
Beating Street expectations, Infosys reported net profit of Rs 5,428 crore, up 11.7 per cent YoY and 4.3per cent sequentially. Revenue for the quarter was up 20 per cent to Rs 29,602 crore. The company beat Bloomberg estimates on both topline and net income levels.
 
Infosys ADR (American Depository Receipts) were up 3.72 per cent to $22.695 until 7.46 pm (IST). The stock closed at Rs 1,708.75 on the BSE, up 1.42 per cent.
 
The company said that Q2 was yet another exceptional quarter with broad-based growth across segments as it continued to grab market share. Infosys’ total contract value (TCV) for the quarter was $2.15 billion for the quarter. The figure looked softer when compared to $2.6 billion it reported last quarter.
 
 "Our stellar performance and robust growth outlook continue to demonstrate our strategic focus and the strength of our digital offerings, as we witness a strong market opportunity with global enterprises rapidly accelerating their digital journeys,” said Salil Parekh, CEO and MD. The digital business grew 42.5 per cent YoY; 56 per cent of its revenue now comes from digital as it reaches a $9 billion yearly run rate.
 
The company continued to outperform Tata Consultancy Services (TCS) for the fourth straight quarter. On a constant currency basis, the revenue came in at $3.99 billion, up 6.3 per cent sequentially. “The company has again outperformed TCS in terms of revenue growth in QoQ terms in which TCS dollar revenues was up 4% QoQ vs Infosys which increased by 6.3% QoQ in CC terms,” said the first cut note from ICICI Direct Research.
 
Both Infosys and Wipro managed to give a robust performance. Wipro also managed to beat Bloomberg revenue growth estimates, though its net profit performance sequentially was down. Wipro also managed to reach the $10 billion revenue milestone in Q2.
 
For Infosys, growth was broad-based across geographies and segments with the largest geography, North America, growing at 23.1 per cent and the largest segment, Financial Services, growing at 20.5 per cent YoY in constant currency. The company also managed to deliver on margin expansion despite a rise in sub-contractors, salary hikes, and currency headwinds. The operating margin for the quarter was 23.6 per cent.

 
“Our operating margins for Q2 were resilient; the impact of enhanced employee value proposition initiatives was offset by strong operating parameters, cost optimisation and operating leverage,” said Nilanjan Roy, chief financial officer, Infosys.
 
However, attrition was a concern at the company. Infosys’ attrition touched 20.1 per cent, substantially higher than 13.9 per cent is the previous quarter. This despite the fact that the company gave one of the highest number of promotions in the industry. TCS managed to control its attrition much better than peers.
 
“We believe that attrition will settle down in a few quarters. We are expanding our college graduate hiring programme to 45,000 for the year. We have not seen this war for talent ever playing out. This is an industry phenomenon. That’s why you are seeing companies rushing to campuses. Infosys has the highest attrition at the junior level,” said Pravin Rao, COO. The company had earlier given a target of hiring 35,000 freshers for FY22.
 
The company also clarified its progress of bringing the income-tax (IT) portal to full functionality. Parekh said that the portal is seeing steady progress with 1.9 crore returns being filed so far. “Almost 200,000-300,000 returns are being filed on a daily basis. Forms 1 to 7 are functional and available. About 38 million users have completed transactions on the portal.”
 
The company also acknowledged that though there were still some glitches they were confident of solving them along with the IT team and the tax community.
 
Market experts gave a thumbs up to the Infosys stock, following the result. "Infosys reported better-than-expected performance across the financial parameters. Though large deals TCVs remained below our expectations, the management cited that the deal pipeline remains strong. We believe the company is well positioned to report industry-leading revenue growth given broad-based demand, decent deal wins, and strong deal pipeline. We have a “buy” rating on the stock," said Ashis Dash, Research Analyst, Sharekhan by BNP Paribas.
 
But DD Mishra, Sr director analyst, Gartner, flagged the company’s attrition rate.  “Though Infosys has managed an excellent mix of digital and legacy components contributing to its overall growth, Infosys needs to watch out for its attrition rates. Most of its revenue comes from North America, which has room for review as the emerging regions also bring good opportunities.”