Q1 results: Infosys outshines TCS on growth front

Taking forward his love for automation, Infosys CEO Vishal Sikka (in the front seat) arrived at the company’s Bengaluru headquarters in a driverless golf cart, built by the firm’s engineers, on Friday. Photo: Vishal sikka’s official Twitter handle
Riding on the back of improved efficiency and earnings from new businesses, software exporter Infosys on Friday saw its first quarter profit grow 1.4 per cent to Rs 3,483 crore and revenue by 1.8 per cent to Rs 17,078 crore, prompting the company to raise its dollar guidance for the year ahead.

The Bengaluru-based information technology major forecast dollar revenue to grow 7.1-9.1 per cent, up from April’s guidance of 6.5-8.5 per cent, but still faces headwinds due to uncertainty in large deals from customers in the US and Europe. 

The result beat Street estimates, lifting the stock by 3 per cent intra-day on the BSE, but closed 0.44 per cent down at Rs 972.05.

“We grew in new areas much faster than the older areas, which is exactly how we want this to be,” said Vishal Sikka, the company’s chief executive officer.

Taking forward his ideology of automation, Sikka arrived at the firm’s headquarters on Friday in a driverless golf cart, engineered by his team at Mysuru with support from the Indian Institute of Technology, Delhi. 

“The important thing to keep in mind there is that with advances in automation technology, more and more of the commoditising jobs are going away and we have to move forward towards next generation jobs, new areas of opportunity and building new skills,” Sikka said.

He claimed that the earnings from the firm’s new services — those which he introduced over the past two years, including platforms such as Nia, Skava, Edge, and Panaya — accounted for nearly 10 per cent of the company’s revenue in the first quarter. 

“The new services and new software together is approximately 10 per cent of our revenue this quarter. If you look at last two years or so, this has accounted for almost half of the $2 billion we have added. This is why the strong growth,” said Sikka. 
Infosys had posted a profit of Rs 3,436 crore and revenue of Rs 16,782 crore in the first quarter of the previous financial year. Compared to the fourth quarter of fiscal 2017, the company saw profit dip 3.3 per cent, while revenue was 0.2 per cent down as business from banking and financial services, retail and life sciences and manufacturing clients, which generates revenue of three out of four dollars, remained flat. 

Employee utilisation — a metric to indicate the people billed on customers — stood at 84 per cent, the highest so far. Employee count reduced by 1,811 people to 198,553, boosting per employee productivity at $51,900. Infosys’ operating margin remained flat at 24.1 per cent compared with the year-ago period.

Analysts said it was too early to celebrate Infosys numbers.

“I do not think there is great optimism. However, Infosys has been working on the execution part and is getting closer to Tata Consultancy Services (TCS) in terms of utilisation,” said Apurva Prasad, IT analyst at HDFC Securities. 

Infosys’ performance was better compared to rival TCS, which reported muted numbers on the back of slower growth from clients in banking and financial services and retail. TCS’s first quarter profit dropped 5.8 per cent to Rs 5,945 crore and margins got hit due to currency fluctuations and impact of wage hikes in the quarter.

Revenue grew 1 per cent to Rs 29,584 crore in the quarter to June, on the back of volume growth of 3.5 per cent, the highest in four quarters. TCS had reported profit of Rs 6,318 crore on revenue of Rs 29,305 crore in the April to June period last year

Analysts also attributed TCS muted growth to the settling down of its chief executive, Rajesh Gopinathan, and the senior management. TCS had reported 18.9 per cent business from digital services, but four out of five dollars it generates continue to be from the traditional commoditised IT services, which earn lower profits.

“Between the two, we prefer Infosys. Now they have started disclosing the digital and new services businesses, that become an important metric. The North American growth of TCS and Infosys is identical — 1.7 per cent CC growth. In case of Infosys, there is no bad news, they did not cut the guidance.” Prasad of HDFC Securities said.

TCS, Infosys and other IT services companies are facing their worst crisis in a decade as technology shifts towards cloud, automation and also due to growing protectionism in their main markets puts pressure on business. 

Sikka has got Ravi Venkatesan, a former Microsoft India chairman and now the Infosys co-chairman, to guide him. The company has also relocated Chief Financial Officer M D Ranganath to the United States to help drive more business.

“I am encouraged by the uptick in revenue per employee for six quarters in a row, and the strong momentum in our new high growth services and software, as we accelerate our focus on innovation-led growth,” said Sikka.

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