Infosys Q3 Net Profit Up 13%, Beats Expectations

Infosys Q3 Net Profit Up 13%, Beats Expectations

Beating expectations, Infosys today reported 13 per cent jump in consolidated net profit for the third quarter to Rs 3,250 crore, helped by increase in business and clients from North America, as also from India.

The country's second largest software services firm's consolidated revenue rose 5.9 per cent to Rs 13,796 crore in the quarter ended December 31, while it maintained its revenue outlook for the entire fiscal ending March 31.

Increasing its focus on software products and new age solutions like Artificial Intelligence, Internet of Things, Infosys also said it has expanded its innovation fund from the USD 100 million to USD 500 million, which will be used to invest in young firms world-wide.

Reacting to the results, Infosys shares rose by over 5 per cent to Rs 2,073.60 apiece on the BSE, lifting the overall market.

Commenting on the firm's performance, Infosys CEO Vishal Sikka said: "We are excited by several breakthrough results in Q3. Our 'renew and new' strategy, is being received well by our clients and our ecosystem and we are already seeing its early adoption."

In dollar terms, Infosys posted 12.7 per cent jump in net profit to USD 522 million, while revenue was up 5.6 per cent to USD 2.21 billion in the third quarter.

Brokerage firm Angel Broking's Sarabjit Kour Nangra said that the third quarter profits are better than expected, while a sequential growth of 0.8 per cent in revenues at USD 2.2 billion is also in line with the expectations.

Infosys COO U B Pravin Rao said: "During the quarter, we saw broad-based volumes growth, increased utilisation and strong client additions. We have made 100 per cent variable payout for Q3 and have seen a further decline in attrition as a result of multiple initiatives taken over the last few quarters."

During the third quarter, 2014-15, the firm added 4,227 people (net), taking its total headcount to 1,69,638. Infosys and its subsidiaries also added 59 clients (gross) during the quarter.

On a quarter-on-quarter basis, Infosys' net profit was higher by 4.9 per cent, from Rs 3,096 crore in the July- September period; revenue grew 3.4 per cent from Rs 13,342 crore in the second quarter of the 2014-15 fiscal.

"Our sequential revenue growth in Q3 was adversely impacted to the extent of 1.8 per cent due to US dollar appreciation against other major currencies," Infosys CFO Rajiv Bansal said.

Speaking from a geographical perspective, Rao said: "We have seen good demand in North America barring few verticals, Europe is a bit intense."

North America grew by 2.1 per cent sequentially, while India grew by 14 per cent quarter-on-quarter. Europe declined by 2.1 per cent sequentially and Rest of the world declined by 2.3 per cent q-o-q.

"If you look at it from verticals perspective, financial services we are seeing good traction with more traction in Europe than in America. If you look at manufacturing we are seeing fair limited growth and pipeline," Rao added.

Sikka said Infosys achieved utilisation rates which are highest in the last 11 years. He also announced a bonus variable pay of 11 per cent for the employees in a bid to check the attrition.

"We saw drop in attrition in absolute terms, in Q3 we saw attrition of 8,900 this quarter from 10,100 in Q2 and 10,600 in Q1. We are seeing continued drop in attrition which, we continue to monitor and continue to be excited about as we look to the future.

As a result of this achievement we are announcing 100 per cent variable bonus pay out for our units in the company," he added.

Attrition level inched higher to 20.4 per cent in the reported quarter compared to 20.1 per cent in September 2014 quarter and 18.1 per cent in October-December 2013 quarter.

Utilisation rates grew to 75.7 per cent (including trainees) and 82.7 per cent (excluding trainees) in the said quarter.

Sikka commended India for having a "thriving start-up scene".

"So one of the things I am very excited about is our board has approved expanding our start-up plan firm from USD 100 million to USD 500 million and we will dedicate a part of that investing in India," Sikka said.

North Americas contributed 61.6 per cent of the quarter's revenues, while Europe, India and Rest of the World (RoW) markets accounted for 24 per cent, 2.5 per cent and 11.9 per cent respectively.

Liquid assets including cash and cash equivalents, available-for-sale financial assets, certificates of deposits and government bonds were at Rs 34,873 crore as on December 31, compared to Rs 33,616 crore as on September 30.

The company has decided to expand its Innovation Fund from the current USD 100 million to USD 500 million to support the creation of a global eco-system of strategic partners.

Infosys has also pledged Rs 254 crore this fiscal towards Corporate Social Responsibility (CSR) which is primarily being carried out through the Infosys Foundation, its philanthropic arm.

Meanwhile, analysts termed the firm's results as above market expectations.

Angel Broking VP Research IT Sarabjit Kour Nangra said: "Infosys announced its 3QFY2015 results, better than expected."

The company posted 0.8 per cent sequential growth in terms of revenues at USD 2.2 billion, exactly in line with expectations.

However, Greyhound Research CEO Sanchit Vir Gogia believes that the growth of 3.4 per cent Q-o-Q in Indian rupees and 0.8 per cent in USD is sluggish.

"Infosys is not the only company that has been affected by the fluctuation in currency. Q3 is a seasonally weak quarter for all Indian IT services companies due to fewer billing days amid festive holidays in key markets – India, US and Europe," he added.

While Vishal Sikka has done a great job in mapping the long term strategy, the market will look out for softer signs of improvement in short and medium term, he said.

"Key thing to look out for in the coming quarter is their utilisation and attrition rate. 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," Gogia added.

Like its peers (such as Accenture and IBM), Infosys also needs to go beyond pure commentary on Digital, Social Media and Analytics portfolio and attach concrete financial outcomes and guidance in the coming quarter, he said.

Motilal Oswal Securities IT Analyst Ashish Chopra Infosys results are in line with their expectations.

"The margins were ahead of our estimates. We believe going forward, while the magnitude of transformation on which it has embarked is likely to take time, we believe the focus on 'renew and new' is the right approach and will equip the company with capabilities for sustained profitable growth," he said.

This is probably the first time that Infosys has announced its results during market hours, as against the earlier practice of doing it before the market opening.

The company has always been among the first to release the quarterly results. TCS and Wipro will come out with their results next week.

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