Strong euro, low costs boost Infosys’ Q3 PAT

BENGALURU :  Buoyed by favourable currency environment and lower expenses, information technology major Infosys Ltd brought joy to the Street with its Oct-Dec earnings, as profit growth beat expectations and operating margin improvement surprised positively.

Strong euro, low costs boost Infosys’ Q3 PAT

In rupee terms, Infosys’ consolidated net profit for Oct-Dec jumped 19.4% sequentially to 28.75 bln rupees, while consolidated net sales rose just 0.5% on-quarter to 130.3 bln rupees.

The information technology services provider also raised its full-year revenue growth guidance. Shares of Infosys rose more than 3.5% following the results to touch an intraday high of Rs 3,575.00 on the National Stock Exchange. It ended up 2.9% at Rs 3,551.25.

Operating margins improve,  IT major  raises growth outlook in dollar-terms for 2013-14 to 11.5-12.0% from 9.0-10.0%

The net profit for the quarter under review was above estimates as benefits of an ongoing cost-cutting programme were higher than anticipated. Infosys also benefited from lower costs, as it shifted some sales and marketing functions to India from the US and the UK.

At $2.1 bln, Infosys’ Oct-Dec revenue grew 1.7% sequentially and 9.9% on-year. Dollar revenue growth was boosted by a fall in the value of the US currency against currencies such as the euro and the pound sterling.

As a result, revenue from Europe rose 5.5% on-quarter though they were up only 3.5% in constant currency. The share of Europe in total revenue rose to 24.9% in Oct-Dec from 24% in Jul-Sep.

Profit was largely boosted by a fall in onsite expenses, particularly in sales and support. As a result, total selling and marketing costs fell 14.9% on quarter to 6.44 bln rupees.

On the production side too, the company cut back its onsite efforts, while boosting offshore or India-based efforts. Onsite revenue fell to 51.1% of the total from 52.5% a quarter before.

Infosys Chief Executive Officer S.D. Shibulal said the reduction in onsite ‘person months’ was not because of any reduction in headcount.

Infosys’ profits were also aided by a $19 mln benefit due to hedging that reflected in higher other income. In Jul-Sep, the company had a $14 mln charge due to hedging costs.

Analysts seemed happy with the company’s numbers despite the topline being slightly below expectations, and highlighted the margin performance. “Volume growth was lower than expectations because onsite volumes declined by 3.4% QoQ mostly due to offshore effort shift,” Ankita Somani of Angel Broking said.

With Friday’s results, Infosys’ revenue for Apr-Dec has grown 12.77% on-year and analysts largely expect the company to maintain that growth rate for the full year.

FY14 GUIDANCE

Infosys, which is known for its conservative guidance, raised its growth outlook in dollar-terms for 2013-14 (Apr-Mar) to 11.5-12.0%, below analysts’ expectations, but above earlier forecast of 9.0-10.0%.

The software exporter also raised its rupee revenue growth guidance for 2013-14 to 24.4-24.9% from 21.0-22.0% earlier.    -Cogencis

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