“We lost around Rs2,100 crore (due to rupee appreciation), that translates into around Rs1,000 crore on the bottom-line,” said V. Balakrishnan, chief financial officer of Infosys, explaining the slower growth in operating margins.
Still, the company maintained Ebitda margins, a key measure of profitability of operations in most businesses, in the quarter, improving it marginally to 32.59% from 31.27% from the preceding quarter. The 1.8% appreciation in the rupee impacted margins by 80 basis points, which was offset by increased billing rates, said Balakrishnan.
Other income, the revenue from sources other than operational income, was Rs152 crore in the quarter, almost flat from the year-ago period.
The software bellwether’s net profit rose 12% sequentially or over the July-September period, aided by tax reversal of Rs50 crore. The revenue in the period grew 4%, exceeding its 3.2-3.7% guidance, but below analysts expectations. The sequential profit growth, excluding the tax reversal, was 7.36%, close to the upper end of a Mint survey of six analysts that predicted it to be between 5.2% and 8% with the average at Rs1,176.9 crore. The poll had forecast revenues of Rs4,338.88 crore. The poll estimated Ebitda margins to be between 31.1% and 32.1%.
Nimesh Mistry of Man Financial India Ltd, a financial services firm, expressed disappointment at Infosys’ revenue growth. “We were expecting a quarter-on-quarter growth of 7% in the firm’s revenue,” he said, but added that his firm was thinking of upgrading the rating on the stock to buy from neutral because “chance for the stock price of Infosys to go down further from the current levels are low.”
Another analyst said Ebitda margin and growth was helped by lower selling expenses. “The margin expansion (in the quarter) was leveraged by lower selling, general and administrative expenses,” said Harit Shah, the Mumbai-based equity analyst at Angel Broking Ltd.
There remained some uncertainty among analysts. “There is nothing negative that has come out (yet),” said an equity analyst with a foreign brokerage, who preferred not to be named citing company policy. “We have to wait for next year’s outlook for a clearer picture.”
Infosys, which added 47 new clients, including four Fortune 500 firms, said the new customer wins came at an increased billing rate of 3-4%. “The pricing environment continues to be favourable with an upward bias and we are seeing negotiations with customers on our terms,” according to S.D. Shibulal, Infosys chief operating officer.
Infosys got more orders from its top client British Telecom Plc., which accounted for 9.5% of its total revenues in the quarter. The firm signed nine deals that ranged between $50 million and $100 million.
Infosys, which earned most of its revenue from application, development and maintenance of tech services, long considered low-end software activity, five years ago, now has services such as consulting, package implementation, total tech outsourcing, back office support and testing in its portfolio. These services, relatively new among Infosys’ offerings, are considered more profitable.