After several disappointing quarters, the software services industry’s bellwether Infosys surprised markets by posting better than expected third quarter results on Friday. The company, which started the year after missing its annual revenue guidance for the first time in almost two decades, announced that it had, despite “headwinds,” earned consolidated revenues amounting to Rs.10,424 crore, an increase of 12 per cent over the comparable quarter of the previous year. This included revenues of Rs.214 crore earned by Zurich-based Lodestone, which Infosys acquired in September 2012. Excluding Lodestone, revenues increased by 6 per cent on an annualised basis.
The sweetener in the results announcement was guidance, which had thus far disappointed the markets this year.
Uptick in outlook
The company projected revenue outlook for the full year, which has generally been less than half of what the industry body National Association of Software and Service Companies (Nasscom) has estimated, has, for the first time, shown an uptick. The company expects revenues for the full year to be “at least” $7.45 billion, which, S. D. Shibulal, CEO, maintained, “implies a revenue growth of 5 per cent during the full year.” The earlier guidance, which was made prior to the Lodestone acquisition, had projected revenues of at least $7.34 billion in the current year. Lodestone earned revenues of $39 million during the quarter.
Rupee-denominated guidance has been projected at Rs.40,746 crore, while EPS has been set at Rs.162.80. The Infosys stock rose by 17 per cent in a market that was otherwise flat on Friday.
Dollar-denominated revenues amounted to $1.91 billion during the quarter, an increase of 5.8 per cent over the previous year. However, the net profit slipped to $434 million, a decline of 5.2 per cent. In rupee terms, consolidated net profit in the quarter was Rs.2,369 crore, down 0.1 per cent as compared to the year-ago period.
The company added 53 new clients during the quarter, many of whom were outside the million-dollar club. Client accretion during the quarter was significantly more than in the last several quarters.
Among the new deals were 13 in Europe. “Our growth came predominantly from the non-Top 10 clients,” Mr. Shibulal observed. Expressing satisfaction over the results, he said the performance was the result of deals that have been executed in the last few quarters. “We need at least 2-3 quarters after the finalisation of deals for revenues to flow in,” he said.
Mr. Shibulal was repeatedly asked how the company managed to post a better than expected performance so soon after analysts meet in November and early December, which had suggested a poor quarter. He said the company “efficiently” managed widespread furloughs in its main markets during the last quarter, and the effects of Hurricane Sandy that affected employee attendance, apart from the generally “difficult” market conditions. “We worked hard and very closely with clients in order to minimise the impact of the furloughs, especially during the holiday season in December,” he said.
The company’s headcount was 1.55 lakh at the end of the quarter, 1.2 per cent higher than in the previous quarter. The net addition to the workforce was 1,868 persons during the quarter as compared to 3,266 persons a year ago. Mr. Shibulal admitted that the utilisation rate was only about 70 per cent, compared to a target of about 78 per cent.
“If we get there, we can increase margins by 3-4 percentage points,” he said.
