Infosys beats estimates for 3rd quarter, Murthy steals the show

NDTV Profit Desk

13 Jan 2014, 08:30 AM IST

Sales flat: US dollar revenues were up 1.7 per cent quarter-on-quarter (q-o-q) at $2.1 billion from $ 2.066 billion in the previous quarter. This was lower than Street estimates. Infosys blamed it on seasonality (the December quarter has lesser working days at client sites and there are year-end shutdowns in key markets of US and Europe).
Margins surprise: Operating margin or ebit rose 1.5 per cent q-o-q to 25 per cent in the December quarter on account of initiatives to increase efficiencies (cost optimization), CFO Rajiv Bansal said. The upside in margins drove Friday's rally in Infosys shares. Infosys expects margins to stabilise around the same levels over medium term, Mr Bansal added. Net profit was ahead of estimates (up 19.4 per cent q-o-q to Rs 2,875 crore) on larger other income, which came higher because of forex gains.
Double digit growth back as expected: Infosys raised its dollar sales outlook for the full financial year 2013-14 to 11.5 to 12 per cent from a previously forecast 9-10 per cent. However, even with the increased growth projection, Infosys is likely to lag behind the IT industry, which is forecast to grow at an average of 12-14 per cent (Nasscom estimates).
Mixed commentary on demand: Infosys CEO SD Shibulal said external business environment continues to improve gradually, but also added that budgets are likely to be flat. Clients are focused on cost optimization, he added. Infosys reported a 0.7 per cent q-o-q rise in blended pricing in the December quarter. Volumes rose 1.4 per cent.
Europe saves the day: Infosys sales declined 0.8 per cent q-o-q in North America- its biggest market, which accounted for 60 per cent of total sales in the quarter. However, sales in Europe, which accounted for 24.9 per cent revenues, rose 5.5 per cent q-o-q.
Retail led growth in the quarter: Financial services (Infy's biggest) vertical grew 2 per cent q-o-q, but retail, consumer goods, logistics & life sciences outperformed with 3.4 per cent q-o-q growth. However, manufacturing was flat. Infosys said this was on account of seasonality. Energy, utilities & communications grew by 0.8 per cent sequentially.
Focus on "bread and butter" IT deals yet to show results: As percentage of total revenues, IT services stood at 61.3 per cent (versus 61.4 per cent in q2 ), consulting accounted for 33.4 per cent (versus 33.3 per cent in q2) and products & platforms accounted for 5.3 per cent (unchanged).
Infosys reported its first decrease in workforce in nearly five years: The employee count came down by 1,823 in the December quarter. Attrition rates rose to 18.1 per cent from 15.1 per cent a year ago. Infosys management said this is not a secular trend.
On CEO succession: Mr Shibulal said the top management restructuring at Infosys was complete with the appointment of the two presidents - BG Srinivas and Pravin Rao. Executive chairman Narayana Murthy said he would like one of the two presidents to become CEO after Shibulal retires in 2015. It is for the nominations committee to decide on CEO succession.
Murthy steals the show: The founder took questions on Infosys from the media, perhaps for the first time since his return at the helm in June 2013. He said he will remain with Infosys for full five years and leave no stone unturned to make Infosys the aspirational company it used to be. Mr Murthy also praised his son Rohan, who is his executive assistant, and said, "Rohan Murty is doing a brilliant job at Infosys. I am grateful to him."