Infosys pegs revenue growth for FY21 at 0-2%; Q1 profit beats expectation

Information technology (IT) services major Infosys on Wednesday forecast its revenue growth for the full financial year 2021 in the range between 0% and 2%.

The Bengaluru-headquartered firm reported a better-than-expected quarterly profit, an 11% rise, helped by deal wins despite Covid-19 related disruptions. Unlike its peers, the company reported revenue growth of 1.5% in constant currency during the quarter. 

The company reported a net profit of Rs 4,233 crore in the first quarter ended June 2020, from Rs 3,798 crore, it reported a year earlier.

The country’s second-largest software exporter saw revenue at Rs 23,665 crore, a growth of 8.5% from Rs 21,803 crore it had reported during the first quarter of the previous financial year. The revenue grew 1.7% sequentially.

Infosys reported $1.7 billion in large deal signings during the June quarter.

“Infosys Q1FY21 results strongly beat our estimates across all fronts… We believe strong Q1 results and revenue growth outlook for FY21E would drive consensus earnings upgrade and support recent run-up in stock price,” Sanjeev Hota, head of research at brokerage firm Sharekhan said in a statement.

IT firms in India have benefited from depreciating rupee during the quarter. For Infosys, this helped to increase margin by 1.6% over the preceding quarter. Infosys reported a 25.5% growth in digital revenue, which now contributes to 45% of the company’s revenue. Digital deals also provide better margin, the company said.

“Our Q1 results are a clear testimony to the relevance of our service offerings and deep understanding of clients’ business priorities which is resonating with them in these times. Our confidence and visibility for the rest of the year is improving driven by our Q1 performance and large deal wins,” Salil Parekh, CEO and managing director of Infosys said.

Parekh added that the deal pipeline continues to be good in most sectors barring the retail vertical, which saw a decline of 7.4% in constant currency, while most other verticals were mostly flat or reported good growth like high technology and life sciences. He said that while the company is open to acquisitions, it will not be for boosting topline but for adding new technologies, clients or geographies.

“Our business model has proved more resilient than the overall market and the growth does not indicate the overall pie is growing. The new areas of service due to the Covid-19 such as automation, cybersecurity and cloud has helped us grow,” Parekh said.

The company on Tuesday signed a multi-year partnership deal with Pennsylvania-based investment management firm Vanguard to digitally transform the financial services firm’s defined contribution (DC) recordkeeping business.

Infosys COO Pravin Rao said that the visa ban by the US government is unlikely to have an impact as the visa offices in the country are closed as well as the lack of travel between the two countries. “We have localised our onsite requirement by up to 60% and have hired over 13,000 US citizens in the past 2.5 years,” he said.

Rao was non-committal on the productivity or margin benefit arising out of the work from home (WFH) scenario in the long term even as 99% of the Infosys employees continued to be in their homes.

Infosys saw flat growth in North America, which contributes to over 60% of its sales, while Europe, which contributes 24% of topline, saw a growth of 4.4% in constant currency. India, which contributes to 2.9% of the company’s overall sales, saw a 32.8% growth.

Infosys also reported a drastic drop in voluntary attrition, which stood at 11.7% during the quarter, as compared with the 20.2% attrition it saw during the same quarter of last year as opportunities have dried up due to the Covid-19 pandemic.

Infosys also appointed Bobby Parikh as an additional and independent director of the company effective July 15, 2020 for a period of three years.