BackQ4 results: Infosys sees faster growth in FY17
India's second largest software services firm expects dollar revenue to expand between 11.8% and 13.8% in FY17
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Infosys Ltd, India’s second largest software services company, on Friday forecast dollar revenue growth to accelerate in the current fiscal year as it stays on the course of a turnaround engineered by chief executive officer (CEO) Vishal Sikka.
The Bengaluru-based company expects dollar revenue to expand between 11.8% and 13.8% in the year to 31 March 2017, as it chases the goal of more than doubling sales to $20 billion by March 2021.
In the year gone by, Infosys posted industry-leading revenue growth of 9.1% to $9.5 billion, a marked improvement over the 5.6% pace at which it expanded in the previous year. Net profit rose 1.9% to $2.05 billion from the previous year.
That included revenue of $2.44 billion in the quarter to 31 March, up 1.6% from the preceding quarter and 13.3% from a year ago. The company earned a net profit of $533 million in the three months, up 1.7% on a sequential basis and 7% from a year ago.
A Bloomberg survey of 34 analysts had forecast Infosys to report revenue of $2.48 billion, or ₹ 16,465.4 crore, in the quarter. The analysts estimated the company to report a net profit of $529.81 million, or ₹ 3,514 crore, in the period.
Under Sikka, who became the company’s first non-founder CEO in August 2014, Infosys is banking on automation, artificial intelligence and high-margin digital services to power its growth.
“I am proud of our company’s achievements in my first fiscal year as CEO of Infosys," said Sikka. “I’m very excited about the year ahead."
Infosys has regained its tag of industry bellwether at least two quarters earlier than the management’s own guidance. At the start of his term, Sikka had reiterated his predecessor N.R. Narayana Murthy’s promise of getting Infosys back to industry-matching growth numbers by September 2016.
Infosys’s revenue growth of 9.1% in the year to March will be much higher than its larger rival Tata Consultancy Services Ltd’s (TCS’s) expected pace of between 7% and 8%, and Wipro Ltd, which will struggle to expand more than 4%. TCS will declare its earnings on Monday and Wipro will report its numbers on Wednesday.
“Infosys’s solid results appear to indicate that the sales momentum has stabilized. Its bullish growth guidance for the full year, significantly ahead of market growth, suggests that the softness in North America and financial services is seen as a blip rather than a macro issue," said Thomas Reuner, managing director of IT outsourcing research at HfS Research. “However, as the macro environment remains challenging, there will be bumps on the road ahead."
Industry body Nasscom in February forecast 10-12% growth for IT and software services exports in the current fiscal year.
Infosys’s operating margin improved by 60 basis points to 25.5% at the end of the March quarter, compared with 24.9% at the end of the December quarter. A basis point is one-hundredth of a percentage point.
“4Q FY16 results financially and operationally reconfirm the momentum is on track at Infosys," Pankaj Kapoor, director of India IT services and software equity research at JM Financial Institutional Securities Ltd, wrote in a note titled Picking Up Momentum.
The company added 89 new clients in the fourth quarter, taking the total number of customers to 1,092.
In the January-March period, Infosys won large deals, adding up to a contract value of $757 million. In the full year to March, it won large deals valued at $2.8 billion, a 45% increase over the previous year. Contracts valued at over $50 million are clubbed as large deals by Infosys.
Every 1% incremental growth in the fourth quarter can increase the growth of a company of the scale of Infosys by 1% in the next fiscal year, said an Infosys executive on condition of anonymity. “Now, we are in a comparatively better position for the new financial year. We still maintain it’s too early to say we are done with the turnaround, and there is still a lot to be done," said the executive.
“This year, the focus will be on execution—how do we generate more business from existing clients," said the executive. “We need to cross-sell more of our service offerings to clients. In the last year, we have improved our ability to win large deals. Now, we also need to focus on this part to generate more business from existing clients."
Infosys’s business improved across geographies in the quarter, but a 0.3% sequential decline in the banking, financial services and insurance space was a sore point. This underscores Nasdaq-listed Cognizant Technology Solutions Corp.’s warning earlier this year of big banks holding back their tech spending.
Infosys’s revenue from the Americas improved by 0.5%, while business from Europe increased 2.4% during the quarter.
Its attrition rate improved to 12.6% at the end of the fourth quarter from 13.4% at the end of December, helped primarily by measures implemented by Sikka to boost employee morale.
“The big takeaway is the solid guidance," said a Mumbai-based analyst at a domestic brokerage firm on condition of anonymity. “This (estimated) growth of up to 13.8% in dollar terms is higher than the most optimistic numbers."
Still, the management’s growth forecast means that Infosys, beginning this fiscal year, needs a compound annual growth of 16.05% to achieve its goal of becoming a $20 billion company by March 2021.
Infosys shares closed at ₹ 1,172.70 on Wednesday on BSE. The stock has risen 6.1% so far this year.
Markets in India were closed on Thursday and Friday for public holidays.
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