Infosys Q2 Results: Revenue Guidance Raised As Profit Surges, Margin Expands
Net profit rose 13.72% sequentially to Rs 4,858 crore in the quarter ended September.
Infosys Ltd.’s quarterly profit rose after it ramped up deal execution as headwinds from the Covid-19 outbreak eased. That gave the software services exporter enough confidence to increase its growth forecast for the rest of the fiscal.
Net profit rose 13.72% sequentially to Rs 4,858 crore in the quarter ended September, according to its exchange filing. Analysts’ estimates compiled by BloombergQuint had pegged the bottom line at Rs 4,474 crore.
- Revenue rose 3.82% over the previous quarter to Rs 24,570 crore—higher than the estimated Rs 24,131 crore.
- Dollar revenue rose 6.12% to $3,312 million.
- Operating profit rose 16.1% to Rs 6,228 crore.
- Margin expanded to 25.3% from 22.7%.
Infosys now expects revenue to grow 2-3% in FY21, higher than the 0-2% growth it had guided for earlier. It has also raised operating margin guidance to 23-24% from 21-23%.
The Covid-19 outbreak, which brought economic activity to a standstill across the world, had led to a new layer of challenge for India’s IT industry. Costs increased over the last two quarters as employees worked from home. Companies even lost billings as the outbreak hit even overseas clients that generate bulk of Indian IT’s revenue.
Even amid uncertainty, Infosys stood out among peers as deal wins and costs cuts helped anchor its margin. The Bengaluru-based firm improved its performance during the July-September period aided by increasing demand and normalisation of supply-side disruptions.
“The resilience at Infosys was fully visible with the company witnessing broad-based growth and its highest ever deal wins,” Chief Executive Officer Pravin Rao said in a statement. Infosys’ deal wins stood at $3.15 billion, he said.
Growth was led by the mainstay banking and financial services vertical, which Infosys said is investing heavily in digital infrastructure. “Areas like banking processing, payments space and lending space are doing well,” Rao said in the press conference.
While growth will continue to be driven by the BFSI and hi-tech verticals, retail and manufacturing segments will take longer to recover. “Given the nature of the segments and the impact of the pandemic on both demand and supply side, we remain cautious,” Rao said.
Chief Financial Officer Nilanjan Roy said that margin improved as the company cut down significantly on its discretionary expenses like travel costs and marketing spends. However, some of the gains in the margin will be reversed as things normalise and such expenses go up again. Besides, the resumption of salary hikes will, too, impact margin, he said.
Like Infosys, its rival Tata Consultancy Services Ltd. and smaller peer Wipro Ltd. both reported a growth in profit and recovery in operating margin.
The financial results underscore an increasingly optimistic sentiment for Indian IT among analysts and companies alike. While client spending on IT is estimated to fall 7.3% this year, the recovery is expected to be faster and smoother than the rest of the economy, according to Gartner.
“With the easing of lockdown restrictions, many enterprises will soon return to a higher level of revenue certainty allowing some cash flow restrictions to ease and CIOs to resume spending on IT again,” the industry tracker had said in its July update.
Salary Hikes To Resume
Infosys has also said that it will resume handing out salary increments and promotions from Jan. 1. The company had put hikes and promotions on a halt due to uncertainty from the Covid-19 pandemic.
“Employees have been a critical part of our success,” said Chief Operating Pravin Rao in a media statement. “As a recognition of their stellar performance, we are giving 100% variable pay along with a special incentive for Q2. Additionally, we are rolling out salary increases and promotions across all levels effective Jan. 1.”
Its rival TCS, too, had resumed new hirings and salary hikes from Oct. 1.
Besides, Infosys also brought down its attrition to single digits during the quarter. Attrition fell to 7.8% compared with 11.7% in the previous quarter. The company had over 2.4 lakh employees globally as of September-end.
Other Highlights
- The company has announced an interim dividend of Rs 12 per share—an increase of 50%.
- Digital services now form 47.3% of the total revenue.
- Sudha Murty’s term as Chairperson of Infosys Foundation extended till Dec.31, 2021.
Shares of Infosys closed 1.8% lower, ahead of the results, while the benchmark BSE Sensex ended 0.42% up.