Infosys results relief after TCS downer; Q2 profit up 5.8% sequentially

Salil Parekh, Infosys CEO
Infosys, the second-largest information technology (IT)-services company in the country, on Friday reported a 9.8 per cent year-on-year (YoY) rise in revenue to Rs 22,629 crore. Its YoY net profit fell 2.2 per cent to Rs 4,019 crore, but this was a 5.8 per cent rise, sequentially.

“We had a really strong and robust quarter. Our revenues grew in double digits for the fourth consecutive quarter. Also, our operating margin improved and the attrition level declined by 2 per cent,” said Chief Executive Officer and Managing Director Salil Parekh.

He added, “Five of our six business verticals have recorded double-digit growth, which gave us the confidence to raise the lower end of our revenue guidance.”

Infosys now expects its revenue to grow at 9-10 per cent in 2019-20 (FY20) against 8.5-10 per cent it had expected earlier. This is the second time in FY20 that Infosys has raised its revenue guidance.

Improvement in operating margins and a healthy deal pipeline were other positives for Infosys in the quarter. 

In dollar terms, the revenue of the Bengaluru-headquartered firm rose 9.9 per cent YoY to $3.21 billion. This was a 2.5 per cent rise sequentially. In constant currency terms, the revenue rose 11.4 per cent YoY and 3.3 per cent in sequential term. 

This is higher than bigger rival Tata Consultancy Services, which reported 8.4 per cent quarterly growth in revenue in the same period.

Infosys’s digital services grew 38.4 per cent, contributing 38.3 per cent to its revenue. The firm’s operating margins improved 120 basis points sequentially to 21.7 per cent on the back of various cost-optimisation measures.

For the first half of FY20, the operating margin stood at 21.1 per cent. 

“We didn’t derive any benefit from the cross-currency movement in the second quarter. However, a higher utilisation level, increased onshore-offshore mix, and automation helped us improve the operating margins,” said Nilanjan Roy, chief financial officer at Infosys. 

However, Infosys maintained its operating margin guidance range of 21-23 per cent for FY20. 

Infosys signed $2.8-billion worth 13 large deals in the second quarter, the highest ever. The management was also confident of the deal-conversion rate.

“When you compare (on YoY basis) for the first half of this financial year, our total contract value for large deal is 75 per cent higher than the first half of last year,” said U B Pravin Rao, chief operating officer.

Besides retail, which grew 1.1 per cent, all verticals reported double-digit growth. Banking, financial services and insurance grew 10.3 per cent, energy and utilities grew 19.2 per cent, manufacturing grew 16.9 per cent and hi-tech grew 11.7 per cent.

“In financial services, some European banks and capital markets grew slowly. In Q3, we will see overall seasonal weakness but that’s nothing new,” said Parekh.

He added that retail had grown wonderfully in FY19, but slowdown in Q1FY20 and Q2FY20 could continue for a sometime.

Net staff addition in the quarter under review was 7,457, taking the total headcount to 236,486. Attrition also came down by 170 basis points on sequential basis to 21.7 per cent. 

“For the IT services segment, voluntary attrition was 18 per cent, lower than the previous quarter,” said Rao. “We hired around 14,000 people. While more than 6,000 trainees (fresh graduates) joined us in India, about 700-800 joined outside India, including laterals.”

Market analysts said Infosys’s performance was in line with expectations and margin improvement was a positive surprise.

“The key highlights of the quarter were strong large deal wins and robust growth in digital revenues,” said ICICI Securities. 

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