Infosys net profit up 11% in Q1

Our Bureau | | Updated on: Jul 15, 2020
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IT major back to giving guidance; buoyed by large deal wins, aggresive cost cutting

Infosys is back to giving guidance after postponing it for a quarter with the IT services’ company forecasting revenue growth in the range of flat to 2 per cent in constant currency and operating margin in the range of 21-23 per cent.

Explaining the rationale behind giving guidance, CEO and MD Salil Parekh said the $1.7 billion large deal wins in the first quarter gave the company the confidence to do so.

“We saw $1.7 billion large deal wins in the first quarter and the Vanguard win this week. There was good traction in the areas of cloud, cost efficiencies, automation and consolidation. All these factors even with significant uncertainties in the global economic environment, we felt that we are in a position of giving guidance in constant currency terms. The guidance range is the same as that of the previous year,” Parekh told a news conference on Wednesday.

The IT services major recorded an 11.5 per cent increase in net profit to ₹4,233 crore for the first quarter of FY21 on a year-on-year basis on the back of large deal wins and cost reduction measures. Revenues rose 8.5 per cent to ₹23,665 crore. Its large deal signings were $1.74 billion. On a sequential basis, net profit decreased 2 per cent while revenues rose 1.7 per cent.

Infosys shares rose 6.47 per cent to ₹833.95 on Wednesday’s closing.

Cost cutting push

Infosys CFO Nilanjan Roy said the company went for some aggressive cost reduction measures to protect margins.

“We wanted to see how can we avoid cost increases. One way to do it was reskilling existing employees instead of hiring for new demand. Short-term and temporary cuts were carried out on discretionary work. Travel expenses were reduced and we initiated cut back on branding, marketing and did some aggressive rate negotiations which resulted in another 70 basis point from the rupee depreciation.”

He said operating margin expanded to 22.7 per cent driven by the pre-emptive deployment of strategic cost levers along with tactical opportunities triggered by the pandemic.

“Collections were robust and capex was focused, which led to 50 per cent year-on-year increase in Free Cash Flows. Our liquid and debt-free Balance Sheet is a huge source of strength in these times.”

Parekh said, “Our confidence and visibility for the rest of the year are improving driven by our Q1 performance and large deal wins.”

Emkay Global in its note to the investors said Infosys June quarter results were a blowout relative to expectations. It said Infosys is the first domestic IT services company to beat expectations on both revenues and margins in this quarter, unlike other peers who have reported till date.

“Infosys FY21 revenue outlook implies that FY21 will mark the second year in a row where Infosys will outgrow TCS, as well as the margin outlook, which implies that the company will defend /improve margins this year after multi-years of decline through the last several years,” the note said.

The company posted an operating profit of ₹5,365 crore, recording a growth of 20 per cent year on year and 8.9 per cent QoQ. The operating margin was 22.7 per cent with the basic EPS was ₹9.98, a growth of 13.1 per cent year on year and a decline of 2 per cent QoQ.

The digital revenues were at $1.38 billion which is 44.5 per cent of total revenues with a year-on-year growth of 25.5 per cent in constant currency. The free cash flow saw a year-on-year growth of 63.5 per cent to ₹5,524 crore. Voluntary attrition for IT services declined to 11.7 per cent from 20.2 per cent in Q1 20.

COO Pravin Rao said Infosys will hire about 20,000 employees over this year and the next. He said the company is entirely de-risked as far as the impact of H-1B visa restrictions are concerned with 60 per cent of the workforce being visa-independent. It has currently about 13,000 American employees working on its several centres.

The company also said it has appointed Bobby Parekh as an independent director on its board.

Published on July 15, 2020

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