Infosys CEO Salil Parekh.
Infosys CEO Salil Parekh.

Infosys raises full year revenue guidance as Q1 exceeds estimates

  • Infosys’s April-June net profit rose 5.3% year-on-year to 3,802 crore, supported by large deals worth $2.7 billion
  • The company said its decision to return more money to shareholders would not hurt its M&A plans

NEW DELHI : An estimate-beating June quarter profit and large deal wins helped Infosys Ltd raise its revenue guidance for the full year, while maintaining its margin forecast on Friday. The information technology company also revised its cash allocation policy, deciding to distribute 85% of its free cash flow over five years cumulatively, against 70% earlier.

The Bengaluru-headquartered software exporter raised its full-year constant currency revenue growth guidance from 7.5-9.5% in April to 8.5-10%. It also retained its full-year margin guidance of 21-23%.

Infosys’s April-June net profit rose 5.3% year-on-year to 3,802 crore, supported by large deals worth $2.7 billion.

A Bloomberg estimate of the company’s net profit, based on forecasts given by 22 analysts, had pegged it at 3,736 crore.

Revenue for India’s second largest IT services exporter came at 21,803 crore, a rise of 14% from the year-ago quarter. It was, however, a trifle short of the Bloomberg estimate of 21,814 crore, an average of forecasts given by 24 analysts. In constant currency terms, revenue was up 12.4%.

“We are fortunate to see the (earnings) growth coming back strongly. We are complete with all our investments. Our focus is on operational efficiency," Infosys’s chief executive officer and managing director Salil Parekh said at a press conference.

Pushing off wage hikes for a section of junior level employees to July couldn’t hold back the erosion in the company’s margins, which deteriorated by 3.2 percentage points to 20.5%.

The company usually staggers its salary hikes, reserving April for junior-level staff, July for mid-level employees and October for the senior management.

Attrition, a constant battle for most IT companies—particularly Infosys—remained high, rising by 40 basis points (bps) from the year-ago period to 23.4% at a consolidated level.

On a sequential basis, exits were even worse, rising as much as 300bps. One basis point is one-hundredth of a percentage point.

The company added 906 employees in the quarter. Pravin Rao, Infosys’s chief operating officer, said the company will continue to persevere to arrest attrition, but added that it was difficult to say when it would eventually come down.

The IT major plans to hire 18,000 freshers from university campuses this financial year.

“Overall, earnings performance was healthy and the increase in revenues guidance to 8.5-10% has positively surprised us. Also, the company’s new stated objective of capital allocation to investors at 85% of free cash flows is quite comforting," said Sanjeev Hota, vice-president, research, BNP Paribas-owned Sharekhan.

Sharekhan has a ‘buy’ rating on the stock with a target price of 840, a premium of 15.5% from Thursday’s close of 727.10 on the BSE. The results were announced after market hours.

The company’s management maintained that its decision to return more money to shareholders was aimed at more value creation, and it would in no way hurt its merger and acquisition (M&A) plans.

Infosys’s chief financial officer Nilanjan Roy said the cash balance of $3.5 billion was more than sufficient to meet any contingency, as well as M&As.

Infosys said it would continue with its share buyback programme, notwithstanding the government’s decision to tax such returns to shareholders at 20%.

Companies often took the share buyback approach to avoid the 20% tax payable on dividend distribution.

The Union budget has plugged the anomaly.

The company is on track to complete its previously announced share buyback of 8,260 crore. It has, till date, bought back shares worth 5,934 crore.