Infosys Beats Profit Estimates On One-Time Tax Benefit

Infosys Ltd.’s quarterly profit rose more than expected as a one-time tax refund in the U.S. and increased adoption of digital services boosted growth in a seasonally weak quarter for information technology firms.

India's second-largest software services outsourcer’s profit in the quarter ended December rose nearly 38 percent over the previous three months to Rs 5,130 crore, according to its stock exchange filing. It was higher than Rs 3,591 crore consensus of analyst estimates tracked by Bloomberg.

The bottom line was aided by an income tax reversal of Rs 1,432 crore paid in the previous years after the company signed an advance pricing agreement with the U.S. tax authorities. While Infosys accounted for it in the third quarter, the actual amount is expected to be staggered over the next few quarters, it said in the notes to the financial statement.

• Revenue rose 1.3 percent on a sequential basis to Rs 17,794 crore. Analysts had expected Rs 17,849 crore.
• Revenue in dollar terms rose 1 percent over the previous quarter to $2,755 million.
• Operating margin expanded 10 basis points to 24.3 percent.

This was the first earnings announcement with new chief executive Salil Parekh at the helm of the firm. Parekh was appointed in December, four months after his predecessor Vishal Sikka stepped down after a prolonged standoff with promoters including NR Narayana Murthy over corporate governance lapses and hefty severance packages of former executives.

Parekh has now been brought in to steady the Infosys ship and restore confidence at a time when it already faces hurdles like declining client spending, increased automation, adoption of newer cloud-based technologies and visa curbs in certain countries. His immediate challenge would be to “connect with the clients and employees”, Parekh said.

Watch the Infosys press conference here.

Infosys, like other rivals in the industry, is looking to revive growth by faster adoption of cloud and artificial intelligence-based digital technologies. Revenue from digital services now contributes more than 25 percent of the company's total turnover, UB Pravin Rao, the chief operating officer in the media statement. “Increased adoption of our digital offerings and new services helped stabilise price realisation.”

Revenue from its mainstay operations in the banking, finance and insurance space fell 1.6 percent over the previous quarter to Rs 4,643 crore.

Maintains Sales Guidance

Infosys maintained its U.S. dollar sales growth forecast at 6.5-7.5 percent, a prediction that was cut last year after the boardroom upheaval. The Bengaluru-based firm also maintained its full-year revenue guidance in constant currency terms at 5.5-6.5 percent but cut its sales growth forecast in rupee terms to 2.1-3.1 percent from 3-4 percent earlier.

"We are seeing the IT spending environment improving in the U.S.,” Trip Chowdhry, managing director-equity research at Global Equities Research told BloombergQuint. Infosys’ guidance is “a reflection of the fact that IT spends are stable to improving. The guidance given is achievable,” he added.

Shares of Infosys extended gains for the fifth trading session and closed 0.3 percent higher at Rs 1,078.65 ahead of the earnings announcement.

Also Read: New Infosys CEO Salil Parekh Takes Charge