Infosys posts 4% drop in Q1 PAT at Rs 3,440 crore; cuts guidance


BENGALURU: Infosys put out a quarterly report card that fell well below market expectations. It slashed its full-year revenue guidance, disappointing investors who punished the stock in early-morning trade as weak spending from Europe dragged down quarterly growth and ended the company’s recent resurgence over the last four quarters.

Shares of India’s second largest software exporter were down nearly 9% in early morning trade at Rs. 1075.50 on the BSE at 10.35 a.m. on Friday.

Infosys also scaled down its full-year revenue guidance to 10.5-12% in constant currency terms. In April Infosys forecast revenue growth of 11.8-13.8% in actual currency terms for the 2016-17 fiscal and by 11.5-13.5% in constant currency terms.

For the June quarter, Infosys posted a net profit of $511 million, compared with $476 million in the year-ago period. Revenue grew 10.9% to $2.5 billion, falling short of average expectations. On a sequential basis, dollar revenue grew at a mere 2.2% in a typically strong quarter for software services exporters.

Analysts on average were expecting India’s second largest software exporter to post revenues of about $2.55 billion, according to a Bloomberg poll of analysts.

In rupee terms, net profit rose 13.4% to Rs.3436 crore on revenue of Rs.16,782 crore, which was up 16.9% from last year.

“We had unanticipated headwinds in discretionary spending in consulting services and package implementations as well as slower project ramp-ups in large deals that we had won in earlier quarters, resulting in a lower than expected growth in Q1,” said CEO Vishal Sikka.

More worryingly for Infosys, employee attrition shot up to 21%, from previous levels of about 13% during the March quarter — indicating that more than one out of every five employees left the company during the quarter.

The weak performance from Infosys comes a day after the company suffered a setback with the departure of top Sikka lieutenant Samson David, who is joining HPE later this year. David’s exit marks at least the fifth top-level departure from Infosys since Sikka took over as CEO in 2014.

The June quarter is typically a strong one for Indian software exporters, as top customers such as General Electric and Citigroup deploy their budgets for the year and hand out contracts to IT vendors such as TCS and Infosys.

Prior to this quarter, a resurgent Infosys had posted its strongest set of numbers in the past four quarters, raising investor hopes of an imminent turnaround of fortunes and a return to its former status of bellwether of India’s IT industry under Sikka.

The disappointing performance from Infosys comes at a time when global IT spending is growing at its slowest pace in nearly a decade. Earlier in July, technology researcher Gartner said it expected global tech spending to remain flat at $3.41 trillion in 2016.

Industry lobby Nasscom has also raised concerns about slower growth in the sector and pegged software export revenues to grow 10-12% in FY17, down from 12-14% in FY16.

Over the past few years, as technology and business models have changed at its core, top spenders on technology have also cut back on budgets and started shifting core, strategic and futuristic technology projects back into their own technology centres, forcing Indian IT firms to look for newer revenue streams and customers.