Helped by higher revenues from new business services, Infosys turned in a better performance during the first quarter of FY18, but analysts said there were no major positives coming out of the results for the long term.
On a sequential basis, the company beat market expectations marginally, with Q1 revenues growing 2.7 per cent on a constant currency (CC) basis. Market leader TCS, in comparison, grew 2 per cent. While the dollar revenue guidance has been raised to 7.1-9.1 per cent from 6.1-8.1 per cent earlier, the revenue guidance on a CC basis remains unchanged at 6.5-8.5 per cent. The operating margins for Infosys came in flat at 24.1 per cent.
Infosys’ net profit rose 1.4 per cent to ₹3,483 crore for the first quarter year-on year, while revenues grew 1.8 per cent to ₹17,078 crore. On a sequential basis, Infosys fared badly. Revenues fell 0.2 per cent to ₹17,078 crore while net profit fell 3.3 per cent.
India’s second-largest software exporter said that for the past couple of years, revenues of about $1 billion had come from new technology areas such as automation and cloud computing. The market reacted accordingly, with Infosys shares rising more than 2 per cent in morning trade. At the end of day’s trading, the stocks were flat at ₹972.
The company’s CEO, Vishal Sikka, sounded optimistic about the results. “Our persistent focus on execution in Q1 is reflected in broad-based performance on multiple fronts: revenue growth, resilient margins despite multiple headwinds, healthy cash generation and overall business results,” Sikka said.
But an analyst with Emkay Global Financial Services said there were no major takeaways from the results. “We believe that though the numbers are better than expected on reported basis, we do not see any major positives on an annual basis as there has been no uptick on constant currency guidance despite better performance. This indicates that the pricing gains are not sustainable, and profitability would see downtick in the coming quarter on lower sequential growth, wage hikes (effective July’17) and rupee appreciation.”
Rupee rise hurts Profitability was affected by the rupee’s 3.5 per cent appreciation against the dollar in recent quarters. Additionally, the impact of wage hikes, which the company began giving its employees in July, and visa expenses, dragged profitability down. Also, Infosys took a write-down on one of its start-up investments. In the March-ended quarter of 2015, it had invested ₹94 crore to form a company with Dream Works Animation (DWA). It has written off ₹71 crore, which Sikka attributed to change in DWA ownership. “We had less than 20 per cent holding and the patent company wound down the business,” he said. This investment was made from its $500 million innovation fund.