Infosys has beaten market expectations for the third successive quarter. Profits have increased strongly on the back of growth in key verticals, traction in high-margin offerings and large customer additions.

But the high attrition rate — of over 18 per cent — has somewhat queered the pitch. The steady decline in employee numbers shows Infosys is not just losing high-profile members of its top management team, but that talent retention has also started becoming a company-wide issue.

The good On the financial side, however, improvements in operating margins and a hike in revenue guidance added lustre to the numbers. The management has indicated that operating margins would be sustainable at 25 per cent levels, still among the highest in the industry.

While revenue grew by 1.7 per cent sequentially in dollar terms, net profit rose by 20.9 per cent, helped by a 44 per cent increase in other income. High interest rates may hurt debt-burdened companies, but for companies with a large cash hoard like Infosys, they generate higher treasury income.

Volume (person months billed) growth for the quarter was up 0.7 per cent. For the second consecutive quarter, the company witnessed improvement in realisations through operational improvements and an increase in the offshore component of projects.

Two key verticals, BFSI and retail & life sciences, grew faster than the company’s revenue rate, while most segments managed some growth.

The company once again saw good momentum in its high-margin package implementation and system integration service. This indicates that the company has been able to tap discretionary spends of clients quite well.

Infosys witnessed one customer addition in the $300-million category and one in the $200-million bucket with healthy additions in the sub-$100-million level too. Europe led the geographies with a strong 5.5 per cent expansion in revenue. The US grew at a tepid pace.

Operationally, utilisation, at 78 per cent, is inching towards a desirable 80 per cent level. The offshore component of revenue too has increased during the quarter which gave a boost to the margins.

Not-so-good Attrition is a big concern — it is the highest reported over many quarters —and is much higher than peers such as TCS and HCL Technologies.

The company has forecast 11.5-12 per cent revenue growth, which places it at the lower end of the rate predicted by trade body Nasscom for the industry. With a consistent show in financials despite several exits in its senior management, Infosys may well be back to higher-than-industry growth rates by the next fiscal.

> venkatasubramanian.k@thehindu.co.in

Related Topics
comment COMMENT NOW