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TimesofIndia Business

Infosys pulls ahead of TCS after long time

BENGALURU: Infosys surprised the street with a robust 12.4% year-on-year increase in revenue in constant currency in the quarter ended June. The performance sent its share price soaring by 6-7% in early trade on the NYSE (the results were announced after close of trading in India).

The growth was faster than that in the previous quarter, and after a long time, it pulled well ahead of TCS. The latter, which announced its results earlier this week, had seen growth slow down to 10.6%, from 12.7% in the previous quarter.

Infosys’s performance allowed it to raise its revenue growth forecast for the year to 8.5-10%, from 7.5-9.5%.

The company said large deal signings, at $2.7 billion, was the highest ever, and revenue from digital – which is where customer IT spends are increasingly moving to – grew by 41%. The revenue acceleration provides much-needed impetus in a lacklustre environment characterised by macroeconomic headwinds, higher visa costs and appreciating rupee.

“We have had a very strong start to the year,” Salil Parekh, CEO and MD of Infosys, said. “The large deals performance was critical. Many of our sectors are growing in double-digits including communication and energy, utilities and resources. We see a lot of things with respect to growth well in place. We see a strong client connect and relevance with our digital offerings that’s giving us some level of confidence to raise our guidance,” he said.

Digital revenue crossed $1 billion for the second consecutive quarter, and now comprises 35.7% of overall business.

However, the traditional business remained almost flat at $2 billion, which could be a cause for concern. And despite the tailwinds from digital, revenue per employee has dropped to $54,000 in the June quarter, compared to $54,900 in the year-ago period.

Its net profit dropped 4.2% year-on- year to $642 million. Operating margin dropped to 20.5%, from 21.5% in the previous quarter due to higher visa costs and higher compensation outgo. “Q1 is a seasonal quarter from margin perspective (because of salary increments). We have maintained our margin band of 21% to 23% for the 2020 fiscal,” said CFO Nilanjan Roy.

The company was an industry margin leader once. In 2014-15, it had an operating margin of 25.9%. A number of cost-cutting measures are said to have been undertaken – such as restrictions on travel – to stop margins from falling further.

Growth in the quarter was driven by communications, hitech and energy & utilities that grew 22.6%, 17.7% and 14.6% in constant currency respectively. BFSI, the bread and butter for all Indian IT firms, picked up sharply in the quarter, growing at 11.3% largely on account of the Stater acquisition. Infosys bought a 75% stake in Stater, a wholly-owned subsidiary of ABN Amro Bank, for $143 million in March. The acquisition was concluded in May. “Overall, we are reasonably optimistic about prospects in the space. Three large deals were in the BFSI segment (in the June quarter). However, there is softness in capital markets and retail banking,” said COO UB Pravin Rao.

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