Infosys Profit Rises on Client Wins, One-Time Tax Benefit

(Bloomberg) -- Infosys Ltd. posted a 38 percent surge in third-quarter profit on a tax benefit and investments in digital technologies as its new chief executive officer maintained forecasts for slowing sales growth.

Net income was 51.3 billion rupees ($806 million) in the three months ended December, compared with the 36.1 billion rupee average of estimates compiled by Bloomberg. The company booked a $225 million gain, part of a series of tax-provision reversals agreed upon with U.S. tax authorities. Sales rose just 3 percent in the quarter.

The earnings announcement is the first since Salil Parekh took over as chief executive officer last week after a boardroom tussle that ushered out Vishal Sikka. Asia’s second-largest software services company had been an investor favorite before a very public clash between its directors and several founders over corporate governance issues. Parekh’s pledged to keep steering Infosys away from a traditionally labor-intensive model.

“Infosys results are decent, actually positive as there is no negative,” said Sushant Kumar, fund manager at Mumbai-based Raay Global Investments Pvt. “After Sikka’s exit, market was expecting a status quo on results front and it came.”

Full-year revenue will rise 5.5 to 6.5 percent in constant currency terms, while in U.S. dollars growth is projected at 6.5 to 7.5 percent, a prediction that was cut last year after the boardroom upheaval. Sales in fiscal 2017 rose 9.7 percent.

Infosys shares traded 0.3 percent higher on Friday in Mumbai before the earnings were released, extending its gain in the past year to 7.8 percent.

Parekh, a former board member at Capgemini SE, has a master’s degree in computer science from Cornell University and has a reputation for being affable but aggressive. The 53-year-old CEO will need to draw on those attributes in navigating the relationship with Infosys’s powerful founder-cohort. Chief among them is former chairman Narayana Murthy, who last year attacked large pay hikes for senior executives as well as generous exit packages for departing executives.

Parekh plans to lay out strategic priorities after April.

“We are progressing towards stability and are well positioned to serve our clients in the new areas of demand,” Parekh said in the earnings statement.

India’s $154-billion IT services industry is investing heavily in cloud- and artificial intelligence-based services to jump-start growth, as clients in key segments such as banking and finance turn increasingly to automation.

“Infosys Q3 results suggest that the company is slowly and steadily heading toward stability,” says Praveen Bhadada, Gurgaon-based global head, digital, Zinnov Management Consulting Pvt. “In line with its major competitors, Infosys would need to carve out a comprehensive strategy to be part of the digital transformation spends of its clients.”

Infosys reported earnings a day after larger rival Tata Consultancy Services Ltd. posted quarterly profit that matched expectations.

--With assistance from Ameya Karve

To contact the reporter on this story: Saritha Rai in Bangalore at srai33@bloomberg.net.

To contact the editors responsible for this story: Robert Fenner at rfenner@bloomberg.net, Edwin Chan

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