Infy retains FY guidance despite strong Q2 nos

Bengaluru: Infosys reported better-than-expected revenues for the quarter ended September, but maintained its full-year guidance for top-line growth and margins, disappointing analysts who expected the IT services company to paint a rosier picture.

Infosys reported revenues of $2.92 billion for the second quarter, up 4.2 per cent sequentially in constant currency terms, which strips out the fluctuations in foreign exchange rates. The company’s net profit stood at $581 million, with a net margin of 23.7 per cent.

“Large deal wins at over $2 billion during the quarter demonstrate our increased client relevance and also give us better growth visibility for the near-term,” Salil Parekh, CEO at Infosys, said in a statement.

The Bengaluru-headquartered firm has forecast revenue growth of 6-8 per cent in constant currency terms, and operating margin of 22-24 per cent, for the full year.

Infosys grew faster than larger rival Tata Consultancy Services in percentage terms in the quarter. After TCS said it would end the year with double digit growth and received a margin boost from the weaker rupee, analysts had expected Infosys to raise both growth and margin guidance.

“Flat margin quarter-on-quarter is a miss despite rupee depreciation, so is FY19 margin guidance of 22-24 per cent,” Urmil Shah, analyst with IDBI Capital, said. “Further, we believe Infosys is being conservative given the Q2 growth, large deal wins, and growth in banking and financial services and the US.”

Infosys said it sees growth revival across sectors and stronger growth from the US, its main market from where it generates more than two thirds of its revenue. The deal pipeline was also strong.

“The demand environment is very strong. We see positive outlook where our own growth is in line with different sectors… we overall feel comfortable with where we are on the guidance,” Parekh said. “The macro (economy) overall is quite good so far. All of the elements give us comfort that we should continue the way we have seen the last two quarters.”

Infosys share closed slightly low at Rs 696.40 on the Bombay Stock Exchange on Tuesday against Monday’s close of Rs 699.10. The company’s ADR on the New York Stock Exchange opened positively and was up 1.56 per cent at 19.05 hours.

Infosys said it has been aggressive on pricing in winning deals, a shift from its past strategy of charging premium from customers, saying it has built a model that can retain margins through efficient delivery of services. It won more than ten large deals, including from banking and finance customers.

With 22 per cent attrition in the September quarter, Infosys’s attrition rate remained high for the third successive quarter.

Chief operating officer UB Pravin Rao said the company is taking several measures to engage employees and retain them. “You can’t control attrition by throwing money,” he said. Rao said high attrition was also due to the increased demand for trained digital talent across companies in the industry.