Software major Infosys posted a near 4 per cent increase in its consolidated net profit for the April-June quarter, beating street expectation and surprisingly shocking everyone by maintaining a "cautiously optimistic" approach keeping its US dollar revenue guidance unchanged for this fiscal.
The Bangalore-based firm, which last month saw the return of its co-founder NR Narayan Murthy in the backdrop of a below than expected performance in the past quarters, added that wage hikes announced in June would have an impact of about 300 basis points on its margins in the next quarter. The company's consolidated net profit rose by 3.7 percent to Rs 2,374 crore for the April-June quarter against Rs 2,289 crore in the year-ago period. Its consolidated revenues rose 17.2 per cent to Rs 11,267 crore from Rs 9,616 crore in the year-ago period.
Reacting to the results, Infosys shares shot-up by nearly 15 percent in early morning trade to Rs 2,905 on the BSE, one of its highest in almost three months.
"Despite facing an uncertain macro environment, changing regulatory regime and a volatile currency environment, we have done well in Q1 and are cautiously optimistic about rest of the year," Infosys CEO and managing director SD Shibulal said. While, the second largest software services exporter kept its dollar revenue guidance unchanged at 6-10 per cent for 2013-14 fiscal, it revised its rupee revenue guidance upwards to 13-17 per cent from 6-10 per cent earlier on account of depreciation in the Indian currency.
Infosys maintained its "cautiously optimistic" approach due to cross currency movements and regulatory changes in the US, Canada and Australia. "We operate in an environment which has several challenges. Discretionary spend continues to be under stress. There are regulatory changes happening in various parts of the world. We have seen changes in Canada and as recent as a week back, in Australia. US immigration bill is in progress. We remain cautiously optimistic. We have not revised our guidance," Shibulal said.
This quarter, Infosys lost $13.4 million in revenue on account of cross-currency movements, Shibulal added. On the issue of wage hike affecting margins, Infosys CFO Rajiv Bansal said: "We have announced compensation increases for FY'14 effective July, which will affect our margins in the future quarter." Last month, it had announced an average 8 per cent hike for local employees and about 3 per cent for those overseas. Infosys said the discretionary spend by clients continues to be under stress, which is also affecting margins.
"Our dependency on discretionary spend actually has gone up. It is almost 34 per cent of our revenue. So our dependence on the discretionary spend is high and that continues to be under stress," Shibulal said. On discretionary spend, Bansal said: "we are not seeing an uptick in this in the market and that is likely to put more pressure on pricing because we have disproportionately higher percentage of our revenues coming from discretionary spend."
In dollar terms, Infosys' consolidated net profit rose by 0.5 per cent to $418 million in April-June quarter this fiscal from $416 million in the same quarter of 2012-13.
Consolidated revenues rose 13.6 per cent to $1.99 billion against $1.75 billion in the same period last year. It added 66 clients in the April-June quarter taking the total number of its active clients to 836, which includes 7 large deals. "There have been strong client additions. We added 66 new clients in Q1. In fact, the largest client we have has grown by 11 per cent this quarter and the top 10 have grown by 4 per cent this quarter," Shibulal said.
The firm added three $100 million clients with the largest additions -18- coming in the $1 million bracket. Its banking software Finacle in the last quarter saw 15 new wins and 14 banks getting activated across the Middle East, Africa, Asia and Central America. "The cloud and big data business has executed over 100 engagements. Over the last quarter, Infosys won over 15 engagements across cloud services and big data," it added.
Besides, over 25 engagements across various industries and areas like field services, customer engagement and enterprise efficiency, were started in the last quarter. The company made gross addition of 10,138 employees (net addition of 575) for the quarter taking its total headcount to 1,57,263 as on June 30, 2013. In terms of revenue break-up based on geographical setting, North America remained the largest revenue generator followed by Europe, India and rest of the world in the first quarter of this fiscal.
On industry-wise revenue break-up, insurance, banking & financial services was the top earner followed by retail & life sciences, manufacturing and energy, utilities, communications & services during the same period. In revenues based on services, business IT services was the top contributor followed by consulting, package implementation and others besides products, platforms & solutions. Infosys's cash and cash equivalents stood at $4.1 billion in April-June quarter against $4.4 billion as on March 31, 2013.
