Home / Companies / Infosys Q3 profit rises 13% to Rs3,250 crore

Bengaluru: Infosys Ltd, India’s second largest software services exporter, on Friday posted a 13% increase in third quarter net profit, beating analyst estimates, as it signed up more clients in what’s a seasonally weak quarter.

Bengaluru-based Infosys’s profit rose to 3,250 crore in the three months ended 31 December, from 2,875 crore a year ago.

The profit, which exceeded estimates of 3,151.3 crore, based on a Bloomberg poll of 24 analysts, was notched up on a 5.9% rise in revenue to 13,796 crore from 13,026 crore.

Infosys also maintained its forecast for full-year sales to rise 7-9% in US dollar terms, citing strong demand from US-based clients. The company makes more than two-thirds of its sales from clients in the US and Europe.

The software services exporter pegged the guidance at 30 September’s exchange rate of 61.76. This effectively means the company has maintained revenue growth guidance in constant currency, which is in line with analysts’ estimates.

The rupee fell 2.04% against the dollar in the December quarter. Assuming current exchange rates, growth could be lower in dollar terms.

Since 1 January till date, the rupee has fallen 1% against the dollar to 62.33.

Having taken charge on 1 August, chief executive officer (CEO) Vishal Sikka has been trying to rebuild the fortunes of the company that was once the bellwether of the $118 billion (around 7.4 trillion) Indian information technology (IT) industry before falling on hard times.

“Based on our strong performance, we are intensifying our efforts to deepen employee engagement, client ecosystem and strengthen our foundation of education as we build a next generation services company that innovates for consistent profitable growth," Sikka said in a statement.

Infosys won three large contracts worth $213 million in the December quarter. The company’s revenue from financial services and insurance clients rose 5.7%, while that from manufacturers rose 8.2%. Revenue from life sciences business grew 9.4%. It added 59 new clients during the quarter.

Investors cheered the results. Infosys shares rose 5.02% to 2,073.60 each at the close of trading on BSE, while the IT index was up 3.5% to 10,752.26 points. The benchmark Sensex closed 0.67% higher at 27,458.38 points.

“The volume growth during the quarter was 4.2% quarter-on-quarter, the highest in the last three years, (which) led to a better operating matrix," said Sarabjit Kour Nangra, vice-president of research (IT) at Angel Broking Pvt. Ltd. “Also, in terms of the client additions, the same has been healthy at 59, with seven clients in the $50-200 million bracket."

Sikka is the first CEO hired externally at a company previously led by its founders. Prior to Infosys, Sikka headed technology for SAP AG, and has brought his software product design focus to Infosys.

He is looking to distinguish Infosys by using artificial intelligence and automation to help clients cut costs, and retraining engineers to think like designers.

Ashish Chopra, IT analyst with brokerage firm Motilal Oswal Securities Ltd, said that “while the magnitude of transformation on which Infosys has embarked is likely to take time, the focus on ‘renew and new’ is the right approach and will equip the company with the capabilities for sustained profitable growth".

Forrester Research’s vice-president and research director, Frederic Giron, concurred.

“...The new Infosys strategy, along with an important effort done by Vishal Sikka visiting 500+ clients over the past 2 quarters, is starting to bear fruits. The ‘Renew + New’ strategy (complementing traditional services with newer technologies like social, mobility, analytics and cloud) is resonating well with clients, which need help defining and executing their digital transformation strategy," Giron said.

In the December quarter, Infosys, which gets more than half of its business from North America, said revenue in that market rose 2.1% over the preceding quarter.

Indian IT firms earn most of their revenue in dollars and spend most of it in rupees since a majority of their employees work out of the country. Sales from clients in the US and Europe account for more than 80% of the revenue at Infosys. In the third quarter, the US contributed 61.6% to total revenue.

Infosys, which has been grappling with high attrition rates, said its efforts to stem the churn of employees by providing higher staff compensation and quarterly promotions were starting to bear fruit.

“On the attrition front, I think from a LTM (last 12 months) basis, it has marginally increased from 20.1% to 20.4% but from absolute headcount perspective, we have seen 10% reduction in attrition compared to the second quarter," chief operating officer Pravin Rao told reporters.

Sikka, too, said he expects attrition to come down to 12-14% in the next two-three quarters.

“We believe that if Vishal can reduce attrition in the beginning of the quarter that will be a good start and a positive step towards winning internal confidence," said Sanchit Vir Gogia, founder and CEO of Greyhound Research.

Sikka has also been trying to stabilize the top management with a mix of old and new leaders, and has hired multiple former executives from SAP.

He recently disclosed plans to increase hiring in the US to boost the company’s expertise in client relationship management, consulting and technical delivery.

Separately, Infosys also said its chief risk and compliance officer and company secretary Parvatheesam Kanchinadham will step down effective 10 January.

Reuters and Bloomberg contributed to this story.

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