In a seasonally weak quarter, Infosys has revised its guidance upwards on the back of continued billion dollar worth deals and growth of the digital business. However, it has reported a 30 per cent drop in net profit to ₹3,609 crore due to a one-time hit on its Panaya and Skava acquisitions.
India’s second-largest software exporter gave a revenue guidance of 8.5-9 per cent, higher than the 6-8 per cent guidance which it had issued at the beginning of 2019 fiscal. Infosys also reported a 20.3 per cent growth in revenues to ₹21,400 crore on a year-on-year basis, which beat expectations of the street for the second consecutive quarter.
As expected, the company’s board cleared a buyback of equity shares worth ₹8,260 crore, the second in as many years, at a price not exceeding ₹800 per share. A special dividend of ₹4 per share has also been announced.
“We seem to be in a good position as our services are finding increased relevance among clients and I am happy I had a strong first year,” said Salil Parekh, CEO and MD.
Plans for Panaya, Skava
While the revenues and guidance were positives, Infosys saw a big dip in profits on a yearly basis, due to a one-time hit on the Skava and Panaya acquisitions and persistently high sub-contracting costs.
The company, under the assets held for sale section, said that on de-classification, it has recognised additional depreciation and amoritisation expenses of $12 million and a reduction of $65 million in the value of Skava.
“We plan to repurpose Skava’s micro services based business and refocus on Panaya’s suite of products,” said Parekh.
BusinessLine was the first to report about Infosys’ plans to leverage Panaya and Skava’s licences and thereby keep them under its own fold.
Industry analysts said that this dip is largely due to increasing investments that the company is making to hire locals as stricter visa curbs in the US and other geographies are forcing IT companies to hire locally.
According to Harit Shah, Senior Research Analyst –IT, Reliance Securities, higher guidance and robust deal wins signify improving revenue visibility, even as cost pressures reflect on margins.
While Infosys has retained its operating margin guidance in the range of 22-24 per cent, at the end of Q3, margins were at 22.6 per cent, the lowest in the last six quarters. In the third quarter, Infosys also bagged large deals worth $1.57 billion.
Sanjeev Hota, AVP Research at Sharekhan by BNP Paribas, said that the increase in revenue guidance and better exit rate for fiscal 2019 provide comfort on double-digit growth in the next fiscal.