Infosys, the country’s second-largest IT services company, on Friday met street estimates of the third quarter’s financial numbers and gave guidance for double-digit growth for the full year.
For the quarter ended December, Infosys posted a net profit of Rs 4,457 crore, a rise of 23.5 per cent year-on-year (YoY). In sequential terms, net profit grew around 11 per cent.
Revenues grew 7.9 per cent YoY at Rs 23,092 crore during October-December. Sequentially, it grew 2 per cent. In dollar terms, revenues were at $3.24 billion, 8.6 per cent higher YoY and 1 per cent on a sequential basis. Infosys’ revenues in constant-currency terms rose 9.5 per cent and 1 per cent in sequential terms.
The third quarter is traditionally a weak quarter for Indian IT services players owing to a higher number of holidays and client furloughs towards the end of the calendar year.
The New York Stock Exchange-listed company is expecting its revenue to grow 10-10.5 per cent in FY20 as against 9-10 per cent guided earlier, on the back of a robust pipeline of large deals and uptick in client spending in sectors such as retail. Improvement in the operating margin, a healthy deal pipeline, and a dip in overall attrition levels were the other positives for Infosys during this quarter.
“We had a robust quarter despite higher than usual furloughs. Our revenues have grown in double digits year-to-date with a strong deal pipeline,” said Salil Parekh, chief executive officer and managing director.
“Given the digital momentum, we have increased our guidance for the whole fiscal year.”
Infosys’ digital revenues grew 41 per cent to constitute 40.6 per cent of the total. However, the company’s core revenues contracted 5 per cent YoY during this period. In the third quarter, the size of large deals stood at $1.8 billion, taking the earnings on this count for the first nine months to more than $7 billion. The IT services firm signed 14 large deals, of which seven were in the banking and financial services space.
During the third quarter, Infosys' operating margin improved 20 basis points to 21.9 per cent on the back of cross currency gains apart from cost optimisation measures. "We are on track to meet our margin guidance of 21-23 per cent for the fiscal. All our cost opimisation measures are executed and we are also building up an employee pyramid in client locations. These measures will help us to improve our margin further," said Nilanjan Roy, chief financial officer at Infosys.
Among verticals, Infosys reported double digit growth in verticals like communication, hitech and manufacturing among others. However, growth in the key vertical of banking, financial services & insurance (BFSI) vertical remained subdued at 6.2 per cent, while it was 2.5 per cent in the retail vertical YoY basis. While communications grew at 18.6 per cent, hitech witnessed a growth of 12.1 per cent.
"There was weakness in the BFSI and retail verticals during the quarter. However, as the client spend comes back, we are better-placed to cash in those opportunities," said UB Praveen Rao, COO at Infosys.
Net staff addition in the third quarter stood at 6,968 to take its total headcount to 243,454. Infosys' attrition also came down by 210 basis points on sequential basis to 19.7 per cent in the December quarter. "For the IT services segment, voluntary attrition was at 15.6 per cent, which was around two per cent lower than the previous quarter," said Rao of Infosys. "In second quarter, we hired around 12,000 people," he added.
Market analysts said Infosys' performance was in line with their expectations. "Infosys delivered in-line revenue performance, while margins slightly missed our expectations. Net profit beat our estimates on the back of higher other income and lower tax rate. BFSI revenue growth moderated during the quarter, on the expected lines," Sanjeev Hota, Head of Research at Sharekhan. "Audit committee has given clean chit to both CEO and CFO on whistleblower issue and also finds no proof of financial impropriety and misconduct, which is a positive for the stock."