Infosys posts decline in Q1 profit, lowers FY17 guidance

Image: Abhishek Chinnappa / Reuters

Vishal Sikka, CEO and managing director, Infosys

After maintaining a consistent earnings momentum during the whole of last fiscal, India’s second-largest IT-services company Infosys ended the first quarter of the current fiscal on a disappointing note. The software-services company posted a muted dollar-revenue growth sequentially, sharply below Street estimates, while it also lowered its FY17 dollar revenue guidance in constant currency terms, dragging its shares down about 9 percent on the Bombay Stock Exchange (BSE) during morning trade on Friday.   

The Bengaluru-based IT firm posted a sequential dollar-revenue growth of 2.2 percent during the June quarter. Many brokerage houses had expected the company to record a sequential dollar-revenue growth in the range of 4.2-4.4 percent during the same period. Infosys also lowered its FY17 dollar revenue outlook to 10.5-12.0 percent from its earlier forecast of 11.5-13.5 percent in constant currency terms  

Typically, for companies with large overseas business operations, constant currency growth is seen as an indicator of real growth. Software-services firms use this method to eliminate the effects of exchange rate fluctuations while calculating financial results.

During the April-June stretch, Infosys recorded revenue of $2.5 billion, while its net profit was $511 million, down 4.1 percent sequentially. In rupee terms, the Bengaluru-based IT firm’s net profit stood at Rs 3,436 crore during the June quarter, a decline of 4.5 percent from the previous quarter. Revenue was up by 1.4 percent sequentially at Rs 16,782 crore in the three months.

For Infosys, analysts were expecting profit during the June quarter to decline in the range of 2-2.5 percent quarter-on-quarter impacted by wage hike and visa costs.

“We had unanticipated headwinds in discretionary spending in consulting services and package implementations as well as slower project ramp-ups in large deals that we had won in earlier quarters, resulting in a lower than expected growth in Q1,” said Vishal Sikka, CEO and managing director, Infosys in a statement.

Its larger rival Tata Consultancy Services (TCS) posted a 3.7 percent sequential rise in dollar revenue growth during the same period to $4.36 billion, the highest recorded by the Mumbai-headquartered IT company in six quarters. TCS’ Profit for the June quarter stood at $940 million, marginally up 0.3 percent sequentially. In rupee terms, TCS’ profit declined 0.4 percent to Rs 6,317 crore, while revenue increased 3 percent to Rs 29,305 crore.

Since Vishal Sikka took over as the first non-founder CEO and managing director of Infosys on August 1, 2014, the company has embarked on a turnaround story focussing on new technologies such as automation and Artificial Intelligence (AI) in an otherwise highly-commoditised Indian IT industry.

“Our client additions and top client growth was strong during the quarter. Automation continues to be a core lever in the renewal of our traditional service offerings.” said U B Pravin Rao, COO, Infosys. “We are making impactful internal process changes through our simplification initiatives with a focus on better employee experience and improved productivity,” he added.

Infosys added three clients to $100 million plus category during the June quarter taking total count to 17. Net addition of employees stood at 3,006 during the quarter. The company had 1,97,050 employees as of June, 2016. Attrition rate (on an annualised consolidated basis) during the quarter stood at 21 percent, up from 17.3 percent in the preceding March quarter. Twelve months ago attrition rate stood at 19.2 percent.