Infosys surprised the market with its third quarter results, reporting an increase in operating margins and raising its annual forecast, giving enough indications that Chairman N. R. Nayarana Murthy had put the company firmly back on the growth path.

Murthy, who addressed the press conference on Friday from the company’s Mysore campus, the first since he returned to Infosys eight months ago, admitted that while the company was going through a transition, it was focused on efficiency.

CEO S.D. Shibulal said the year ahead looks exciting for the IT services industry. “We believe the global economic environment has improved and our clients are gaining confidence to invest in their strategic initiatives.”

The company reported a 21.4 per cent rise in net profit to Rs 2,875 crore in the October-December quarter, compared with the corresponding year-ago period, while revenues increased 25 per cent to Rs 13,026 crore. On a sequential basis, net profit grew 19.4 per cent while revenues were almost flat.

Forecast

Further, in rupee terms, the annual revenue guidance for FY14 was revised upwards for the second consecutive quarter. The forecast has been revised to 25 per cent from 22 per cent the company gave out in July.

Operating margins rose 148 basis points, clearly indicating that Murthy had delivered on his promise of better cost control. Murthy said though he was saddened by some of the top level exits, it happened probably because the company could not accommodate their ambitions, while some others left because they preferred lower challenges. “But the beauty of this company is that it has a good funnel of strong leaders. Therefore, (the exits) will not be my worry at all,” he said.

He said the executive council was abolished as it had become superfluous after an internal report suggested that the company should have two presidents who will have their own governance structures in place.

He felt that this management structure will create an internal platform of leadership candidates that will help the nominations committee for selection of a new CEO once Shibulal retires.

Meanwhile, Infosys announced that geographies in which Infosys operated in will now be converted into seven industry segments with operational heads for each of them.

Ashish Chopra, analyst with Motilal Oswal Securities said revenue was in line but operating profit margin was a positive surprise.

Partha Iyengar, Vice-President at technology research firm Gartner, said: “Lot more needs to be done and Infosys still needs a couple of quarters to get back on the consistency track.”

The markets reacted positively to the Infosys result. After hitting a record high of Rs 3,581 almost immediately after the market opened on Friday, the Infosys stock closed at Rs 3,548.9 on the BSE, a gain of about 3 per cent over the previous day’s close.

Positive effect

The positive vibe also percolated to other IT counters. CMC, Rolta India, Polaris Financial Technology, NIIT Technologies, Tech Mahindra, TCS and Wipro gained in excess of 2 per cent.

Thanks to the gains in IT stocks, S&P BSE-IT and S&P BSE TECk indices remained unaffected even though the market tumbled post noon, after the Government announced weak industrial production numbers for November.

While the former gained 2.16 per cent, the latter climbed 1.76 per cent. Daljeet Singh Kohli, Head of Research, IndiaNivesh Securities, expects the gap between TCS and Infosys to narrow once the latter starts delivering consistently.

venkatesh.ganesh@thehindu.co.in

(This article was published on January 10, 2014)
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