Infosys delivers growth in Q1 but margins decline

Software services and consultancy major Infosys Ltd reported better-than-expected revenue growth for the first quarter ended June 30, 2019 on the back of strong digital revenue growth at 42% as well as highest ever large deal wins.

The Bengaluru-based IT firm reported strong revenue growth of 2.3% sequentially and 10.6% year on year (YoY) on a consolidated basis, helping the IT major to raise its revenue forecast for the full year to 8.5-10% from 7.5-9.5%.

The company reported revenue of $3.13 billion for the first quarter on a constant currency basis, compared to $3.06 billion during the March quarter. The company's growth rate YoY stood at 10.6% as it had reported $2.83 billion during the same quarter of the last financial year.

The contract value of deal wins in the first quarter stood at $2.7 billion, an official statement said on Friday, July 12, 2019.

"This strong start was achieved through our consistent client focus and investments which have strengthened our client relationships as well as strong digital revenue growth,” said Salil Parekh, chief executive and managing director of Infosys.

Infosys reported a net profit of $546 million, a growth of 2.2% over the first quarter of last fiscal when it reported $534 million. However, net profit saw a decline of 6% sequentially as the company had reported $581 million during the quarter ended March 2019.

The decline is a reflection of decreasing operating profit margin (OPM) over the last 12 months. Infosys' OPM stood at 20.5% during the quarter, declining by 1% sequentially and by over 3% annually.

In rupee terms, Infosys reported revenue of Rs 21,803 crore for the first quarter, an increase of 1.2% sequentially from the March quarter when it reported revenue of Rs 21,539 crore. The company's growth rate YoY was 14% as it had reported Rs 19,128 crore during the same quarter of the previous financial year.

The country's second largest  IT exporter reported a net profit of Rs 3,808 crore, an increase of 5.3% over the first quarter of the last financial year when it reported Rs 3,612 crore. However, net profit saw a decline of 6.8% sequentially as the company had reported Rs 4,074 crore during the quarter ended March 2019.

The company's digital revenue stood at $1.119 billion (35.7% of total revenue), representing YoY growth of 41.9% and sequential growth of 8.6%, it said. Among business segments, Infosys saw energy, utilities, resources and services and communications showing growth rates of 18% and 23%, respectively.

"We had a good quarter as we continue to leverage our digital navigation framework to help our clients build and nurture their live enterprise," said Pravin Rao, chief operating officer at Infosys. " Segment growth was robust with all large regions and most verticals growing at double digits.”

Infosys' attrition rate increased to 21.5%, an increase of nearly 1% over the same period last year and by over 3% from the previous quarter.

The attrition of this quarter indicates employees moving out after the appraisal cycle.The comparative figure for Tata Consultancy Services (11.5% as per Q1 results) is usually in the low teens, indicating scope for improvement for Infosys.

Despite the recent budget announcements, Infosys said it will continue to improve shareholder returns by increasing its capital allocation policy, and it will distribute 85% of free cash flows cumulatively over a five-year period, chief financial officer Nilanjan Roy said.

The employee headcount rose to almost 230,000  at the end of the first quarter, representing a marginal increase sequentially while it was a growth of 20,000 YoY.