Q4 Results: Infosys Guides To 7.5-9.5% Revenue Growth In FY20

Infosys Ltd. announced a steady revenue growth guidance for the year ending March 2020 compared to the previous year.

The Bengaluru-based information technology company expects a 7.5-9.5 percent revenue growth for 2019-20 in constant currency, according to its exchange filing. That compares with the 8.5-9 percent revenue growth it had expected for the previous fiscal. The guidance is within the analysts’ expected range of 7-10 percent.

The guidance for operating margin for FY20 stood at 21-23 percent—in line with analysts’ expectations. Analysts had anticipated the company to lower margin guidance for the second straight year as it continues to invest in digital services, increase salaries to retain talent and hire more employees overseas.

“They have cut their margin guidance for FY20 which means you will see a slew of earnings per share cuts from the market, at least 4-5 percent EPS cut will happen comfortably post this result”, said Madhu Babu, analyst at Centrum Broking. Emkay concurred, saying “we believe that lower than expected growth and margin guidance should lead to cut in street’s earnings estimates.”

Infosys’ net profit surpassed estimates for the quarter ended March, as a steady stream of new clients countered a contraction in margin. Profit rose 2.2 percent quarter-on-quarter to Rs 4,078 crore in the January-March period, the filing said. That’s higher than the Rs 3,949-crore consensus estimate of analysts tracked by Bloomberg.

The profit has been adjusted for expenses incurred due to subsidiaries Skava and Panaya in the base quarter.

Key Financial Figures For March-Ended Quarter:

• Revenue rose 0.6 percent quarter-on-quarter to Rs 21,539 crore, in constant currency terms.
• Revenue in dollar terms rose 2.4 percent to $3,060 million, in line with estimates.
• Operating profit fell 4.4 percent to Rs 4,618 crore.
• Operating margin fell to 21.4 percent from 22.6 percent.

The company’s operating margin fell to its lowest in at least eleven quarters, lower than the expected range of 22.2-22.5 percent. That’s because of higher cost of training and reskilling employees as the company continues to focus on digital services like cloud computing, automation and analytics. At the same time, the rupee also appreciated to 69.2 against the U.S. dollar in March 2019 from 69.8 in December 2018. That, however, was offset by tighter operations.

Infosys’ revenue growth was mainly led by a 9.9 percent growth in its digital segment. Revenue from its core business, however, fell 1 percent.

“We see the ability to drive operational efficiency into our business,” Chief Executive Officer Salil Parekh said in the press meet after announcing the results. “Overall, we see our business being more stable and better positioned for the shift to digital.”

Other Highlights

Revenue Growth By Geography (QoQ)

• North America’s business grew 3.8 percent.
• Europe’s business grew 1.7 percent.
• Business from the rest of the world contracted 0.6 percent.
• Business from India fell 7.9 percent.

Attrition (QoQ)

• Attrition percent (annualised standalone): 18.3 percent versus 17.8 percent.
• Attrition percent (annualised consolidated): 20.4 percent versus 19.9 percent.

“Overall attrition remains high and we are continuing our focus on arresting the same,” Parekh said in a note accompanying the results.

The company had 25 clients in the above $100 million revenue segment in the March quarter, compared with 23 clients in the preceding period. It had 60 clients in the above $50 million segment in the January-March period versus 59 clients in the previous quarter.

The Skava, Panaya Effect

In January this year, Infosys gave up on its plan to sell the subsidiaries — for the time being — which it had bought in 2015 for $120 million and $200 million, respectively. The Panaya deal was one of the issues that led to differences between Co-Founder NR Narayana Murthy and the Infosys board, eventually leading to the resignation of Vishal Sikka as CEO and some of the board members.

The additional depreciation and amortisation following their reclassification had led to a 40-basis-points fall in Infosys' operating margin in the previous quarter.

Shares of Infosys closed 0.68 percent higher ahead of the results announcement. That compared with 0.4 percent gain in the country’s benchmark NSE Nifty 50 Index.

Infosys has gained around 32 percent over the last 12 years compared with a 25 percent rise in the BSE IT Index.