Infosys Q1 net up 13 per cent, cuts outlook on slow project ramp-ups
Bengaluru: India's second-largest IT company Infosys today reported a 13 per cent jump in its June quarter net profit on new client addition, but cut its annual sales forecast that sent the stock crashing.
Consolidated net profit of Rs 3,436 crore in the April-June quarter was 13.4 per cent higher than Rs 3,028 crore in the same period a year ago. Infosys forecast a 10.8-12.3 per cent sales growth in US dollar terms for 2016-17, down from the previous forecast of 11.8-13.8 per cent as companies worldwide rein in IT spending and shift to cloud-based software services.
The stock slid 9.4 per cent, or Rs 110.45, to trade at Rs 1,065.40 on BSE at 1125 hours. "We had unanticipated headwinds in discretionary spending in consulting services and package implementations as well as slower project ramp-ups in large deals that we had won in earlier quarters, resulting in a lower-than-expected growth in Q1," said CEO Vishal Sikka.
The full-year revenue guidance to 10.5-12 per cent in constant currency terms is lower than April forecast of 11.5- 13.5 per cent. Industry body Nasscom, too, had recently lowered its growth forecast for software exports to 10-12 per cent in the year to March 31, 2017, down from 12-14 per cent in 2015-16.
Infosys earnings comes a day after Sikka's top lieutenant Samson David quit the firm to join HPE. This is at least the fifth top-level exit from Infosys since Sikka took over as CEO in 2014.
David was global head of Mana and cloud, infrastructure and security (CIS). Mana is Infosys' knowledge-based artificial intelligence platform. While the attrition rate during the quarter increased to 21 per cent, Infosys said it is yet to be a concern.
The technology major has relaunched its ESOP programme after a gap of about 13 years for junior to middle level management. This will subsequently be extended to middle management and senior leaders.
Infosys' consolidated revenue for April-June was up nearly 17 per cent year-on-year at Rs 16,782 crore. The earnings per share (EPS) was Rs 15.03 for the quarter, up 13.4 per cent from the year-ago period. In US dollar terms, the consolidated net profit rose 7.4 per cent to USD 511 million in the first quarter of 2016-17 while revenue rose 10.9 per cent to USD 2.5 billion. Infosys' operating margin stood at 24.1 per cent during the first quarter.
"This is reasonable because in every Q1, we have two pieces of additional costs compared to previous (sequential) quarters - compensation increase that we announced which has impacted the margins by 1.4 per cent and visa charges 0.8 per cent, which we were able to offset by cost optimisation efforts," Infosys CFO M D Ranganath said. He said the company will stick to the medium-term margin guidance of 24-26 per cent.
"As for the revenue trajectory for the balance three quarters, we need to watch. At this point in time, we are comfortable with 24-25 per cent margin. Last year, we ended at 25 per cent," he added. According to the company, the utilisation in the last five quarters was above 80 per cent.
"We feel there is scope for improvement there as well. There are other levers like onsite effort mix that did not show improvement, and we want to work on it," Ranganath added.
Breaking up the performance on basis of various geographies, Infosys said North America grew 2.5 per cent on a sequential basis while the business in Europe grew 0.6 per cent over the previous quarter.
Revenue from Indian market declined 7.6 per cent compared with the previous quarter and the company said that given the small base and nature of business, it expects to see "volatility".
The company witnessed 2.2 per cent sequential growth in the financial services and insurance segment, 2.9 per cent in manufacturing and hi-tech industry segment while energy, utility, communications and services rose 3.1 per cent quarter on quarter.
