After disappointing the market for several quarters, Infosys surged ahead of expectations on almost all counts. Infosys’ revenue grew 4.5 per cent (in dollar terms) sequentially in the June quarter, against market estimates of a 3 per cent growth. This was thanks to a healthy volume growth of 5.4 per cent. Its revenue growth also beat TCS’ 3.5 per cent sequential growth in the June quarter that was backed by a tad lower volume jump of 4.8 per cent. In constant currency terms, the revenue growth came in at 4.4 per cent. Aside from a stronger traction in revenues, Infosys also reported better client additions than TCS. While Infosys added one client in the $300 million plus bucket and two clients in the $200 million plus category in the June quarter, TCS added only one client in the $100 million plus bucket.
Infosys’ growth was also broad-based across all verticals including energy, retail and manufacturing. The North America market, which saw revenues dip by 0.7 per cent in the March quarter, reported a 5.1 per cent increase in the latest June quarter.
Attrition rate (annualised for the quarter) too, came in lower at 14.2 per cent, than 23.4 per cent recorded in the June quarter last year. Utilisation rate improved by about two percentage points sequentially to 80.2 per cent.
Infosys’ net profit fell by 4.5 per cent (in dollar terms) due to lower margins. But, at 24.1 per cent, the EBIT margin was broadly in line with expectations. The 170 basis points sequential fall in margins was due to wage hikes, higher visa costs, lower share of business from fixed prices contracts (42.4 per cent vs. 43.8 per cent) and higher onsite revenues (56.1 per cent versus 55.2 per cent). Lower attrition and pick up in utilisation rate will help improve margins in the coming quarters. The management’s focus on upcoming technologies and automation will also aid margins.
Upping guidance
While the company has maintained its revenue growth guidance for FY16 at 10-12 per cent in constant currency terms, it has raised its dollar revenue growth guidance from 6.2-8.2 per cent to 7.2-9.2 per cent. This is mainly due to its robust performance in the June quarter. However, revision of its guidance upwards indicates better visibility and confidence of achieving its growth estimate for the current fiscal.