Infosys Q3 profit up 21%

Tags: News

Earnings at Rs 2,875 cr beat Street estimates; firm upgrades revenue guidance in dollar terms for the full year FY14 at 12%, adds 54 clients

It may still be early to call it the ‘Return of Narayana Murthy effect’ at Infosys, but the second largest software services exporter from India seems headed for better times, unlike the earlier few quarters that saw it missing forecasts and yielding market leadership to more aggressive rivals. On Friday, the company beat market expectations by registering an over 21 per cent growth in net profit for the third quarter of FY14, just about six months since Murthy returned at the helm in June last year.

The company’s net profit for the quarter ended December, 2013 at Rs 2,875 crore was not only 21.4 per cent higher than the Rs 2,369 crore achieved in the comparable year-ago quarter, it also beat the market estimates that had bet on the net profit to be in the Rs 2,600-Rs 2,700 crore range.

The company’s revenue increased by 25 per cent for the latest quarter at Rs 13,026 crore, as against Rs 10,424 crore registered in the year-ago quarter.

“The year ahead looks exciting for the IT services industry. We believe the global economic environment has improved and our clients are gaining confidence to invest in their strategic initiatives,” said SD Shibulal, CEO and MD, Infosys.

“We continue to differentiate ourselves to seize growth opportunities. The recent changes in the organisational structure will enable us to strengthen client relationships and increase market share,” he added.

In dollar terms, Infosys’ net profit stood at $463 million, a 6.7 per cent YoY growth, even while revenues stood at $2,100 million, a growth of 9.9 per cent YoY.

“During the quarter, we saw early but promising results of our initiatives to increase efficiency in our operations. We continue to remain focused on making investments necessary to secure and grow our future,” said Rajiv Bansal, CFO at Infosys.

Encouraged by the latest quarter performance, the company has slightly upgraded its revenue guidance for the full year FY14 at 11.5-12 per cent in dollar terms, as against 9-10 per cent indicated earlier. In rupees too the revenue guidance has been upped to 24.4-24.9 per cent.

The company had a gross addition of 6,682 employees during the quarter, taking the total headcount to 1,58,404 employees. The company added 54 new clients during the period. At the same time, the company’s revenues slightly declined from the North American market, while that from the Europe marginally increased during the quarter.

Analysts too seem to agree the positive vibes emanating from the company after long.

“Infosys has reported operating margins ahead of us, but topline was below estimates. While revenues from Europe grew by 5.5 per cent, it declined by 0.8 per cent from North America,” said Ankita Somani, analyst – IT and Telecom at Angel Broking.

“Infosys’ operating margins have been a concern since last six quarters and during 3QFY2014, the company posted a whopping 145 basis points qoq growth in EBIT margin to 25 per cent, led by operational efficiency with inch up in utilisation level to 74.1 per cent (73.7 per cent in 2QFY2014). The company has still got headroom to increase its utilisation level by another 300 basis points to be comparable with peers, and this in turn, will assist in increasing operating margins further,” Somani said.

“Infosys reported revenues marginally below expectations. This was off-set by a stronger than expected margin and EPS improvement. With Infosys’ reported margins starting to normalise, we believe consensus FY14-16 expectations could continue to move up,” Vipin Khare of Morgan Stanley Research said.

“Incremental margins for Infosys were over 100 bps in Q3. We have been highlighting the bloated cost structure that has so far been dragging reported margins and corrective steps taken by Infosys appear to be working,” he said.

“The guidance is revised upward implying Q4FY14 upper end of guidance to 1.4 per cent. We see stock price to go up by 3-7 per cent driven by earnings upgrade. The comments from the management is positive,” said Shashi Bhusan, senior research analyst at Prabhudas Lilladher.

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