Infosys: Key verticals fire, client-additions robust

K Venkatasubramanian BL Research Bureau | Updated on January 24, 2018

Healthy client additions and growth across verticals were the positives

Infosys has managed to ease the concerns surrounding the IT sector in recent months with a healthy all-round growth in the December quarter.

The company has met market expectations on revenue growth and maintained its guidance for the full year (FY15).

The stock reacted positively rising over 5 per cent in trade.

Healthy client additions, growth across key verticals and improving traction in its high-margin consulting and package implementation offering were the positives for the company during the December period.

Volume (person months billed) growth, too, has been strong, though realisations may have slipped due to pricing reductions and cross-currency movements.

Utilisation has been robust, though attrition remains a point of concern.

During the December quarter, Infosys’ revenue grew 0.8 per cent sequentially in dollar terms, while net profit rose 2.2 per cent.

The profit growth has been ahead of expectations.

Volumes were up 4.2 per cent, its highest in several years, while utilisation rates have been robust at 82.7 per cent, indicating sufficient client traction.

Broad-based growth

Infosys managed to add one client each in the $100 million and $200 million buckets, while increasing its count of customers in the $50-75 million categories by five.

Clearly, the company has been successfully able to hunt down new clients.

Its key BFSI (banking, financial services and insurance), manufacturing and retail verticals have witnessed a growth of 1.1-1.8 per cent and have grown faster than the overall company’s revenue rate.

Revenues from North America grew at a healthy pace. While Europe did expand, revenues from the geography declined on a reported basis amid a weak euro.

India led the growth with a 14 per cent expansion sequentially during the quarter.

That its high-margin service offering has been able to grow at faster than the company’s rate indicated that Infosys has been able to tap into discretionary spends of clients well.

Of course the management has sounded a word of caution indicating that banks are delaying decisions on their IT outsourcing decisions.

Attrition continues to rise and is at 20.4 per cent, well ahead of peers in the industry.

Reiterating guidance

The company has maintained its 7-9 per cent revenue growth in dollar terms for FY15, when there were expectations of a reduction, especially in light of companies such as TCS and HCL Technologies guiding for a weak period.

Though even at this rate Infosys would still end up growing slower than the industry’ expected rate of 13-15 per cent for FY15, a stable platform is expected to be built by the new management for a stronger 2015-16. It is not likely to be re-rated and may continue to trade at a significant discount to TCS.

Published on January 09, 2015

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