Infosys results are good but could have been better

Analysts were hoping for a better performance in the developed markets, at least in three verticals (retail, BFSI and communication) that contribute over 60 per cent of total revenues.

By E Kumar Sharma  
Friday, July 13, 2018

Coming close on the heels of some good set of numbers by Tata Consultancy Services (TCS), India's oldest and largest IT company, Infosys results seem to have missed market estimates. Analysts see the numbers posted by the company as good despite being below expectations in two key verticals of BFSI and communication. "I would sum up the results as good but could have been better," says Sudheer Guntupalli of Ambit Capital. "The growth this time has been driven by very strong recovery in retail, which contributes about 17 per cent of total revenue for the company and this has grown 6.4 per cent sequentially in constant currency terms though I would have liked to see them also well in BFSI, where in constant currency terms they have reported a marginal revenue decline, which is a disappointment. Similarly, in communication, we would have liked to see them better than what they have done."

Analysts were hoping for a better performance in the developed markets, at least in three verticals (retail, BFSI and communication) that contribute over 60 per cent of total revenues. It is only in retail that the company has done better than expectations. The press release by the company quotes CEO and MD Salil Parekh as saying: "the strong revenue and margin performance in this quarter shows that our dual emphasis on Agile Digital and AI-driven Core services is resonating with our clients.  With our Agile Digital business growing sequentially at 8% in constant currency and increase in our large deal wins to over US$ 1 billion, we see good traction in the market." U. B. Pravin Rao, COO, says: "Our emphasis on deepening client relationships resulted in strong client metrics including increase in the number of $100 million+ clients to 24" and adds: "utilization excluding trainees reached an all-time high of 85.7%." M. D. Ranganath, CFO, talks of  the company having "broad-based financial performance on multiple fronts - RoE crossed 25 per cent, free cash flow was up 32 per cent quarter on quarter and operating margins were at the upper quartile of our margin guidance". Also, he emphasises: "while we continue to make strategic investments to leverage the opportunities in Digital, our relentless focus on operational efficiencies continued in this quarter."

Here are the key pointers from the results for the quarter ended June 30, 2018:

1. Digital revenues at $803 million (28.4% of total revenues), sequential growth of 8.0 per cent and year on-year growth of 25.6 per cent in constant currency terms.

2. 1:1 bonus issue of equity shares and 1:1 stock dividend of American Depositary Shares.

3. Q1 FY19 revenues grew year-on-year by 6.8 per cent in $ terms; 6.0 per cent in constant currency terms.

4. Q1 FY19 revenues grew sequentially by 0.9 per cent in $ terms; 2.3 per cent in constant currency terms.

5. Operating margins at 23.7 per cent, at the upper quartile of the guidance.

6. Large deal wins crossed $1 billion, of which over 40 per cent was from Financial Services.

7. $100 mn clients increased sequentially by 4 to 24.

8. Utilization (excluding trainees) at all-time high of 85.7 per cent.

9. Free Cash Flow up sequentially by 32.1 per cent in USD terms.

10. RoE increases to 25.5 per cent as compared to 24.1% last quarter.

11. EPS grew by 3.9% on a year-on-year basis.

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