Infosys profit up 38% sequentially, maintains full-year revenue forecast

Stripped of a one-time gain in the US, Infosys’s quarterly profit would have been down 1.2% sequentially to $571 million. Photo: Mint

Bengaluru: Infosys Ltd, India’s second largest software services exporter, on Friday reported a 38% sequential jump in third-quarter net profit, helped by a one-time gain, and maintained its full-year revenue forecast. The company also announced the departure of one of its three presidents, underscoring the challenge new CEO Salil Parekh confronts in retaining its senior-most leaders.

Infosys’s profit rose to $796 million in the quarter ended December, compared with $578 million in the September quarter, as the Bengaluru-based company booked a $225 million gain made on reversal of income tax expenses in the US. Stripped of this one-time gain, Infosys’s quarterly profit would have been down 1.2% sequentially to $571 million. Dollar revenue rose 1% to $2.75 billion from the preceding quarter.

Infosys’s operating margin improved 10 basis points sequentially to 24.3% from 24.2% in the July-September period. One basis point is one-hundredth of a percentage point.

Infosys retained its earlier growth outlook, expecting dollar revenue to expand in the range of 6.5-7.5% in the year to 31 March, or 5.5-6.5% in constant currency terms, which eliminate the effects of exchange-rate fluctuations. Infosys’s move to retain its growth outlook indicates that the company expects its revenue to decline by 0.61% in the fourth quarter in the worst-case scenario. Infosys needs sequential growth of 3.1% in the fourth quarter to end the full-year with 7.5% growth—the upper range of its revenue forecast.

Infosys was dealt a fresh blow with the exit of company veteran Rajesh Krishnamurthy, president, and head of energy, utilities, telecommunications and the Infosys consulting division. Krishnamurthy was overseeing well over $1 billion of the company’s annual revenue. His exit also highlights the challenge of senior-level attrition, an issue that has been a major headache for Infosys, with at least a dozen executives above the rank of senior vice-president leaving the company over the past 18 months.

On Friday, Infosys also disbanded the board’s committee of directors, which had been formed to oversee and help supervise the performance of previous CEO Vishal Sikka—a move that signals that new CEO Parekh, who was appointed in December, is being given a free hand, without the need for any extra guidance by the board. The formation of the committee of directors caused a lot of heartburn for Sikka, Mint had reported on 21 August. Sikka quit in August after three years at the helm of Infosys, a stint marked by a feud between some founders of the company, led by N.R. Narayana Murthy, and the previous board.

At an unusually low-key press conference by Infosys standards—more so considering that it was the first where Infosys unveiled earnings under a new CEO—Parekh indicated that he would ensure the company maintains a healthy relationship with its founders.

“This is a phenomenal company that was started by people who had tremendous vision. They have created something which will last for a very long time... My hope and expectation will be to be connected to the founders as the original people who started the company and pay respect to them in that light. Beyond that, any other interaction will be a social interaction,” said Parekh.

Analysts will watch how Parekh steers Infosys through the transition and rebuilds Infosys to help the company get back its mojo.

Industry executives maintain that Parekh needs to focus on three important things: build a stable senior management team and restore confidence among employees; assure all investors, including the founders, of stability at the company; and finally, win the confidence of clients to get more work.

In the December quarter, the US, which brings 62% of Infosys’s revenue, grew 0.7% sequentially, while business from Europe, which accounts for 22.2% of overall revenue, jumped 5.9%. Revenue from banking, financial services and insurance, a segment that brings more than a third of Infosys’s revenue, inched up 0.3%.

The firm’s attrition rate dropped to 18.7% in the December quarter from 21.4% during the September quarter. The company’s workforce increased by 3,251 to 201,691 employees. Headcount fell by 113 people in the September quarter and by 1,811 in the June quarter.