The Hindu Business Line : Infosys second-quarter numbers better expectations

Infosys exceeded market expectations and its own guidance in delivering strong September quarter numbers. Revenues for the quarter grew by 2.1 per cent sequentially to Rs 5,585 crore, while net profits grew by about a per cent to Rs 1,540 crore. This comes on the back of two successive quarters of decline.

Lending credence to the fact that stability is returning to its clientele, contribution from BFSI vertical and North American geography has increased, as have revenues from its top 10 clients and from higher-margin services. Volume (person-months billed) growth has returned during the quarter, after a hiatus.

Positive surprises

North America (65.9 per cent of revenues) and BFSI (33.5 per cent), which are the biggest IT outsourcing entities, have been sequential in contribution. Adding strength to the recovery signals is the fact that the retail vertical has also seen increased share in revenues. However, telecom and manufacturing, the other large verticals, continue to witness pressure.

From a service-mix point of view, higher-billed services such as infrastructure management have increased contribution over the last couple of quarters. Consulting and package implementation services are stable.

But the best signal on the improving macro environment comes from the increase in revenues from Infosys’ top 10 clients (to 26.2 per cent) after falling for the past three-four quarters. Thirty-five new clients have been added.

Outside of this list, however, there may be some cause for concern as the annual run-rate of several $10 million and $50 million seems to have gone below that level, though there has been an increase of one client in the $100 million plus category. Utilisation has increased to 2.3 percentage points to 73.2 per cent and the management hopes to achieve 80-per cent levels over the next few quarters, suggesting that volumes may kick in.

The company has increased salaries offshore by 8 per cent and onsite by 2 per cent. This may strain margins, though the company has indicated that it would be to the tune of 2 percentage points only. Traditionally the December quarter is low on volumes compared to other quarter. This, along with the wage hike, may have prompted the management to give a very conservative outlook on earnings for the quarter.

EPS guidance

Infosys appears well placed to achieve the Rs 100 earnings per share guidance that it has given for the full-year. This is marginally lower than the Rs 101 that was given at the start of this fiscal. But given that most operating metrics are showing improvements and as IT budgets of clients start to stabilise over the next couple of quarters, the guidance may be met convincingly.

The direction of the rupee appears to be the only spoilsport. The dollar change rate has already breached the Rs 47 levels at which the company has based its guidance.

Related Stories:
Infosys cautiously optimistic on recovery signs
Pricing pressure has come down, says Infosys CFO

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