Infosys on Friday tweaked revenue guidance for FY17 yet again although it beat market expectations with a 1.5% sequential rise in net profits to $547 million for the October-December period. The software major trimmed its revenue growth guidance for the third time in a row, signalling caution on the demand environment and causing the stock price to fall to Rs 975.15, a dip of 2.49%. The fresh forecast is for a 8.4-8.8% in constant currency as against the earlier projection of 8-9%. Infosys had commenced FY17 with guidance in the band of 11.5-13.5%.
The company crossed the $10-billion landmark in revenues for calendar year 2016 even as volumes moderated to 0.2% from 4% in the previous quarter. Sequentially, revenues dipped by 1.4% in dollar terms, given the long holidays during the period and the impact of a contract cancelled by Royal Bank of Scotland (RBS). The revenues at the end of the quarter stood at $2.55 billion. Operating profit margin (OPM) rose by 0.2% to 25.1% despite the firm taking a 1.1% hit due to cross-currency movements.
Market leader Tata Consultancy Services (TCS) on Thursday had delivered a performance in line with market expectations with a 0.3% growth in revenues in dollars terms and a net profit increase of 1.5%.TCS continued to maintain its margins at the 26% while the volume growth during the third quarter was 1%.
JPMorgan in its note on Infosys’ results said the company’s 3QFY17 print was in line with satisfactory margin performance in a quarter. “EBIT margin increased 20 bps quarter to quarter to 25.1%, materially ahead of our expectations,” the brokerage wrote. Morgan Stanley noted that Infosys had delivered in-line to better numbers for the third quarter, but said the tweaked guidance indicated a muted growth outlook for the fourth quarter.
Commenting on the performance, Infosys CEO Vishal Sikka said, “Taking into account seasonal and other additional headwinds for the quarter, our Q3 revenue performance was broadly in line with our expectations. Beyond the quarterly numbers, we continue to focus sharply on the execution of our strategy, as reflected in the growing embrace of AI-based automation, growth in our new software-led business, delivering innovation, both incremental & breakthrough and fostering a learning-led culture.”
As Infosys steps into 2017, there is a big overhang of the likely change in the visa policy of the new US administration led by president-elect Donald Trump. There are strong indications that H-1B visa policy is likely to be tweaked to put more stringent conditions on the Indian IT companies, which could either increase the costs or make it more complex to execute their businesses.
Sikka said, “There can be an impact from the H-1B policies and we are watching it closely.” However, he added that Trump’s policies are expected to be business-friendly. TCS too had said that it is well prepared to meet the challenges related to visas in the US.
Infosys CFO MD Ranganath said, “Our ongoing focus on operational efficiencies has enabled us to keep year to date (YTD) operating margins at similar levels as the same period last year.” The company has set an OPM range of 24-25% for the medium term.
Almost all its geographies recorded a decline in growth including North America, Europe, India and Rest of the World. Verticals like BFSI, manufacturing, retail, healthcare, etc, showed a dip in growth. JPMorgan noted, “What we didn’t like about the quarter is that just financial services grew (despite the contract loss) while all other verticals declined sequentially.”
Attrition rate during the third quarter stood at 18.4% on consolidated basis as compared to 20% in the second quarter. However, its overall employee strength actually declined by 66 to end at 1,99,763. Infosys chief operating officer UB Pravin Rao said, “Our continued efforts to improve employee engagement and experience has resulted in a reduction in attrition.”