Infy cuts revenue forecast over risks from US, Brexit

Our Bureau Bengaluru | Updated on January 27, 2018

Grim picture Infosys CEO Vishal Sikka (right) with COO Pravin Rao at the announcement of the company’s Q2 results   -  GRN SOMASHEKAR


Flags caution despite cheery Q2 results

Infosys cut its revenue forecast for the second successive quarter, mirroring client concerns over the possible fallout of Brexit and the outcome of the US presidential elections.

The IT major, however, turned out a surprisingly improved all-round performance in the second quarter, with net profit growing 6.12 per cent to ₹3,606 crore year-on-year, while revenues increased 3.14 per cent to ₹17,310 crore on the back of a combination of new client wins and better performance of its banking product Finacle, BPO, consulting and India business, all of which had dragged down performance in the first quarter.

What dampened spirits was the downward revision of revenue growth for the fiscal year at 7.7 -8.5 per cent in constant currency terms, citing the impact of Brexit, delayed spending in certain technology areas and Royal Bank of Scotland’s decision to shelve a large project. In the previous quarter, Infosys had forecast revenue growth of 10-11.5 per cent, which was lower than the 11.5-13.5 per cent it had predicted at the end of 2016 fiscal.

Infosys’ stock reacted sharply to the downward revision in early morning trade, dragging it down by 3.07 per cent to ₹1,019, a yearly low, only to later recover to close at ₹1,027, down 2.34 per cent from the previous close.

“We are in the middle of a fundamental transformation and it will take some time (to recover),” said CEO Vishal Sikka, adding that the company had seen signs of cautious client behaviour.

This wariness was also reflected in the Q2 performance of rival TCS, which posted revenues below analyst expectations, giving early indications of a slowdown in the IT sector. “Given the volatility in the external environment, we believe that a lowered guidance is an attempt by the management to keep street expectations to a more pragmatic level, allowing room for out-performance, if any,” Reliance Securities said in its analyst report.

However, Sikka has stuck to his 2020 vision of $20 billion in revenues, revenue-per-employee of $80,000 and EBIT margins of 30 per cent. Growth came in due to strong deal wins that totalled a contract value of $1.2 billion, higher than the figures from the previous three quarters. “We expect growth to pick up again,” said Ashish Chopra, VP – Research, Motilal Oswal Securities.

Infosys added 78 clients in the quarter, taking its number of active clients to 1,136. Offering some cheer to investors, the company declared an interim dividend of ₹11 per share.

Published on October 14, 2016

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