Infosys Ltd, India’s second largest software exporter by revenue, on Wednesday surprised the market by providing revenue growth guidance of 0-2% for 2020-21, in constant currency, given that analysts had predicted that IT companies will refrain from an annual guidance until at least the next two quarters.
“Our confidence and visibility for the rest of the year is improving driven by our Q1 performance and large deal wins," said Salil Parekh, chief executive officer and managing director, Infosys.
Parekh said the guidance is based on an uptick in demand and strong deal pipeline especially in the financial services, healthcare, and life sciences sector. However, he did not specify a timeframe as to when they could expect a recovery.
Infosys’ net profit for the first quarter-ended June beat analyst estimates, rising 11.5% year-on-year to ₹4,233 crore, as it reaped benefits of its cost optimization measures such as re-skilling of existing talent instead of hiring and signing of large deals worth $1.74 billion. On a sequential basis however, profit declined 2%.
The closely-watched dollar revenue declined 0.3% y-o-y and 2.4% sequentially to $3.12 billion as challenges continued due to the covid-19 pandemic especially in the retail sector.
Operating margins for the April-June quarter expanded to 22.7% from 21.1% in the previous (Jan-Mar) quarter, “driven by pre-emptive deployment of our strategic cost levers along with tactical opportunities triggered by the covid situation", said Nilanjan Roy, chief financial officer, Infosys. “Collections were robust and capex (capital expenditure) was focused, which led to 50% y-o-y increase in free cash flows."
Infosys expects its operating margin for FY21 to be in the range of 21-23% as it continues with its cost optimisation measures like cutting on travel and visa costs and other discretionary spends on branding and marketing.
Infosys’ digital revenues grew 25.5% in constant currency terms to $1.38 billion and contributed to 44.5% of the total revenues for the first quarter ended June. Parekh said Infosys continued to witness strong demand for digital in areas of cloud, automation, and consolidation of IT.
The recent deal with American investment management company Vanguard to transform its digital operations is a sign of a healthy deal pipeline in the digital space, Parekh said.
“Healthy deal wins, digital growth story, improvement in margins and healthy FY21E outlook augurs well for the company. Hence, we remain positive for the company," ICICI Securities said in a post-earnings note.
The voluntary attrition rate in the IT services division declined to 11.7% from 15.3% in the preceding quarter. Rao also said Infosys currently has not embarked on any structural programme to lay off employees although “performance-based exits" continue as usual.
Financial services and retail segments contributed close to half of the revenue for the first quarter. While revenue from financial services grew 2.1%, retail revenues declined 7.4% year-on-year in constant currency terms. The management said while the financial services sector is gaining momentum, retail continues to be under stress.
Infosys declared its earnings after market hours on Wednesday. The shares of Infosys were up 6.2% to close at ₹831.45 on the BSE.
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