Infosys continues to keep its investors guessing with its quarterly numbers. This time, in contrast to the dismal March quarter, the numbers were unexpectedly good.
The company has not only beat market expectations on revenues but also shown an improvement across many key parameters- client additions, utilisation and growth.
Maintaining the guidance of 6-10 per cent growth in dollar terms for the fiscal, when a downgrade was expected, led to the markets giving a big thumbs-up for the stock.
Significant improvement in large-deal wins, improvements in volumes (person-months billed), ramp-up in top customers and growth in key segments such as Manufacturing and Retail were some of the causes for cheer. North America saw increase in contribution to revenues, while the high-margin consulting and package implementation service gained significant traction.
The only sore point was a decline in revenue from Europe, despite its subsidiary Lodestone reporting a strong quarter. In dollar terms, Infosys witnessed a 2.7 per cent growth in revenues sequentially, while net profits fell 5.9 per cent as a result of wage increases, rise in selling and marketing expenses and higher tax outgo.
Healthy deal wins
Infosys’ 4.1 per cent growth in volumes was its best in recent quarters, though there was a marginal decline in realisations. Utilisation at 75.9 per cent indicated an improving demand environment for the company.
The company reported healthy deal wins, with three customers in the $100-million category and as many as seven in the $50-80 million bucket. The good news is that top customers grew faster than the overall revenue rate. Key segments such as Manufacturing and Retail & Life Sciences grew at 4 per cent and 6.3 per cent, sequentially. BFSI revenues too rose, though at a much slower pace.
The North American geography grew (by 4 per cent), making up for slippage in Europe.
Consulting and package implementation revenues increased at a fairly strong pace, indicating that Infosys has been able to tap into discretionary spends of clients.
This quarter was much like the December 2012 period when the company showed all-round improvement.
The June period is generally a seasonally strong one for most IT players and Infosys has capitalized on it.
But given its fluctuating performance in recent quarters, investors may look for signs of sustainability before re-rating the stock. Though the company has reiterated its guidance, 6-10 per cent is still lower than the industry’s expected growth rate for this year.