Infosys maintains FY19 guidance; here are 10 key takeaways from Q1 earnings

Software services exporter Infosys started off the year 2018-19 on a mixed note as Q1 bottomline and operational numbers missed analyst estimates while revenue and FY19 guidance met expectations.

MD, said.

With Agile Digital business growing sequentially at 8 percent in constant currency and increase in large deal wins to over $1 billion, he sees good traction in the market.

The stock price closed 1.12 percent higher at Rs 1,309.10 ahead of earnings announced after market hours today while it rallied 15 percent in June quarter.

Here are 10 key takeaways from April-June quarter earnings:

Profit

Profit for the quarter ended June 2018 stood at Rs 3,612 crore, degrowth of 2.11 percent compared to Rs 3,690 crore in March quarter. It was partly hit by reduction in the fair value of disposal group held for sale in respect of Panaya.

Revenue

Revenue from operations grew by 5.77 percent to Rs 19,128 crore in Q1 from Rs 18,083 crore in previous quarter.

Analysts polled by Reuters on an average expected Infosys to post revenue at Rs 19,093.4 crore, and profit of Rs 3,747.6 crore in the June quarter.

Revenue in dollar terms during the quarter increased 0.92 percent sequentially to $2,831 million and grew 2.3 percent in constant currency.

Digital business, which contributed 28.4 percent to total revenue, stood at $803 million, a sequential growth of 8 percent and year-on-year growth of 25.6 percent in constant currency terms.

Operational Performance

EBIT (earnings before interest and tax) fell 4.6 percent sequentially to Rs 4,267 crore and margin contracted 239 basis points to 22.31 percent for the quarter ended June.

“We had broad-based financial performance on multiple fronts - return on equity crossed 25 percent, Free cash flow was up 32 percent quarter-on-quarter and operating margins were at the upper quartile of margin guidance," MD Ranganath, CFO said.

FY19 Guidance

Infosys has maintained its FY19 constant currency revenue growth guidance at 6-8 percent and operating profit margin at 22-24 percent.

Geographical and Segmental Performance

Revenue from its North America business grew at 1.9 percent sequentially and 2 percent in constant currency while Rest of World also registered a growth of 1.8 percent (QoQ) and 5.3 percent in constant currency.

Europe revenue fell 0.9 percent (QoQ) but grew 2.1 percent in constant currency while domestic business revenue fell 7.8 percent (QoQ) and 4.1 percent in constant currency (CC).

Financial services business degrew 1 percent (QoQ) and 0.2 percent in constant currency terms, but retail revenue increased 5 percent and 6.4 percent in CC terms.

Communication business declined 0.6 percent (QoQ) but grew 1.3 percent in CC terms. Energy and utilities revenue grew 4.3 percent (QoQ) and 5.3 percent in CC terms.

Revenue from its manufacturing segment increased 1 percent (QoQ) and 2.5 percent in CC terms. Hi-tech revenue showed a growth of 1.6 percent (QoQ) and 1.7 percent in CC terms.

Life Sciences business degrew by 0.9 percent (QoQ) but increased 0.5 percent in CC terms.

Employees Strength

Consolidated attrition rate during the quarter increased to 23 percent from 19.5 percent in previous quarter. Standalone attrition rate also jumped to 20.6 percent from 16.6 percent on sequential basis.

Gross addition of employees for the quarter was 17,709 in Q1FY19 against 12,329 in Q4FY18.

Deal Wins

Infosys said large deal wins crossed $1 billion, of which over 40 percent was from Financial Services.

The IT services company has added 4 clients in $100 million band in Q1, taking total clients count to 24.

"Our emphasis on deepening client relationships resulted in strong client metrics including increase in the number of $100 million+ clients to 24," UB Pravin Rao, COO, said. "Utilisation excluding trainees reached an all-time high of 85.7 percent."

Assets Held for Sale

During the three months ended June 30, 2018, on remeasurement, including consideration of progress in negotiations on offers from prospective buyers for Panaya, the company said it has recorded a reduction in the fair value of Disposal Group held for sale amounting to $39 million in respect of Panaya.

Consequently, profit for the three months ended June 30, 2018 has decreased by $39 million resulting in a decrease in Basic earnings per equity share by $0.02 for the quarter ended June 30, 2018, it added.

Bonus issue

The board members approved a bonus issue of one equity share for every equity share held, to celebrate the 25th year of the company’s public listing in India and to further increase the liquidity of its shares.

It also approved a stock dividend of one American Depositary Share (ADS) for every ADS held.

Appointment

Based on the recommendation of the nomination and remuneration committee, the board appointed Michael Gibbs, as an Independent Director effective from July 13, 2018 for a period of three years, subject to the approval of the shareholders.