Infosys profit soars 14.4% in Q2 over first quarter as digital business surges

Amidst the pandemic-induced global market challenges, country’s No 2 IT services and digital technology company Infosys posted a strong performance in the second quarter of 2020-21, en route to regaining its bellwether status.

The IT services’ firm, on Wednesday, reported a 14.4 per cent rise in its net profit in the September quarter at ₹4,845 crore on a sequential basis. Year-on-year, profits grew 20.5 per cent. The company posted ₹4,019-crore net profit during the corresponding quarter last year.

Buoyed by the strong order book, Infosys revised its revenue growth guidance upwards to 2-3 per cent in constant currency for 2020-21, from 0-2 per cent in the last quarter. For the whole year, operating margin guidance, too, was revised up to 23-24 per cent against 21-23 per cent earlier.

Its consolidated revenues from operations increased 3.8 per cent to ₹24,570 crore in Q2 on a sequential basis, and 8.6 per cent YoY.

The deal momentum picked in the reporting period, the company said while announcing its second quarter results here on Wednesday. There was resilience in the marketplace and digital brought in a wave of growth in Q2. Digital revenues grew 25.4 per cent year-on-year and now accounts for 47 per cent of the total business.

Factors that helped

A cut in its discretionary spending, reduction in travel expenses and savings from ‘work from home’ are among factors that helped the company save and record better margins, Infosys said.

“We had a substantial second quarter across multiple dimensions: Client impact, digital scaling, growth and operating margins,” said Salil Parekh, CEO and MD.

Weighing in, Pravin Rao, COO, said, “The strength and resilience of Infosys were fully visible in Q2 with operating metrics witnessing a healthy increase, broad-based growth, highest-ever large deal — TCV at $3.15 billion — and attrition reducing to single digits.”

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Hi-tech, life-sciences and financial services grew strongly year-on-year and on a sequential basis banking and financial segment recorded a positive growth. But retail and manufacturing will take some time to come back, added Rao.

Infosys stocks ended the day at ₹1,136.10, down 1.89 per cent from the previous day’s closing.

“The results are good considering the tailwinds that the IT services industry is experiencing after the initial pandemic scare,” said Shriram Subramanian, Founder and MD of InGovern Research Services, a corporate governance advisory firm.

Interim dividend

Infosys’ free cash flows grew significantly in the first half, driven by its consistent focus on liquidity and cash management, said the company. Consequently, it has decided to increase its interim dividend per share by 50 per cent to ₹12.

Promotion, wage hikes

Buoyed by the results, Infosys announced salary hikes, promotions and special incentives. The company said it would give out a 100 per cent variable pay, wage hike as well as one-time special incentives to employees during the third quarter. Promotions and salary hikes for all employees will be effective in January.

Following a better than expected results for the July-September quarter this fiscal, Infosys has announced a 100 per cent variable pay along with a special incentive for Q2. Additionally, the company is also rolling out salary increases and promotions across all levels effective January 01.

“The strength and resilience of Infosys were fully visible in Q2 with operating metrics witnessing a healthy increase, broad-based growth, highest ever large deal TCV at $3.15 billion and attrition reducing to single digits”, said Pravin Rao, COO of Infosys in a press statement.

“Employees have been a critical part of our success. As recognition of their stellar performance, we are giving 100 per cent variable pay along with a special incentive for Q2. Additionally, we are rolling out salary increases and promotions across all levels effective Jan 1st.”

“Our relentless efforts on cost optimization and strengthening operational efficiencies helped by certain cost deferrals led to 270 bps sequential improvement in operating margin to 25.4% and a 300 bps improvement in H1 margins”, said Nilanjan Roy, CFO. “Free Cash Flows grew significantly in H1 driven by our consistent focus on liquidity and cash management. Consequently, we are increasing our interim dividend per share by 50 per cent to Rs 12 per share.

Q2 results

For the second quarter of the current fiscal, Infosys has posted a 14.4 per cent increase in net profit to Rs 4,845 crore on a sequential basis.

The company has also revised its FY 21 revenue growth guidance revised upward to 2-3 per cent in constant currency with the operating margin guidance revised upward to 23-24 per cent.

The IT major which announced its results on Wednesday said revenues grew 8.6 per cent to Rs 24,570 crore on a quarter on the quarter basis for the same fiscal. On year on year basis, net profit rose 20.5 per cent while the revenues grew 3.8 per cent.

“Our second-quarter performance is a clear reflection of our ability to help clients on their digital transformation journeys. Our digital and cloud capabilities combined with intense client relevance are helping us achieve differentiated results in the market as is visible in 2.2 per cent year on year overall revenue growth and 25.4 per cent growth from digital offerings, which now are at 47.3 per cent of revenues”, said Salil Parekh, CEO and MD.

He said an increase in revenue and margin outlook for FY 21 is due to the continued trust clients have in us.

In constant currency, Q2 revenues grew 4 per cent on a sequential basis. The digital revenues comprised 47.3 per cent of total revenues. The operating margin was at 25.4 per cent recording an increase of 370 basis points year on year. The company has a free cash flow of $674 million with an increase of 69.8 per cent on year on year basis.

Infosys has declared an interim dividend of Rs 12 per share.   

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