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Infosys net profit, revenue beat Street

Mumbai: IT services provider reported better-than-expected profit and revenue in the fiscal second quarter, on broad-based growth across geographies and segments.

The Bengaluru-based company also revised its revenue guidance to 16.5-17.5 per cent for FY22 from 14-16 per cent as stated during Q1.

India’s second largest software services exporter reported a 11.8 per cent increase in net profit to Rs 5,421 crore, while revenue was up 20.5 per cent at Rs 29,602 crore. It announced an interim dividend of Rs 15 per share.

The company has put in place a new organisational structure that will be implemented following chief operating officer Pravin Rao’s retirement in December. This will be announced internally in a few weeks, said chief executive and managing director Salil Parekh.

“The main reason we see tremendous market share gain is because we are continuously making sure to enhance our capability. We are reskilling our people and changing our delivery focus, and clients see that these changes are relevant,” Parekh said.

Growth in North America came in at 23.1 per cent, with the largest segment – financial services – up 20.5 per cent year on year in constant currency terms.

It registered a Total Contract Value of $2.15 billion in the quarter ended September 30, down from $2.6 billion in the first quarter. Operating margins were at 23.6 per cent.

“Our operating margins for Q2 were resilient; the impact of enhanced employee value proposition initiatives was offset by strong operating parameters, cost optimisation and operating leverage,” said Nilanjan Roy, chief financial officer, Infosys.

Digital revenue stood at 56.1 per cent of total revenue, up 42.4 per cent on a constant currency basis.

“Infosys reported strong margin performance and revenue growth is also broad based. Revenue guidance has been upgraded to 16.5 per cent-17.5 per cent, which shows strength in demand,” said Aniket Pande, lead analyst – IT and telecom, at brokerage firm Prabhudas Lilladher. “In a quarter where there is massive pressure on margins, Infosys outperformed on margins which is impressive,” Pande added.

On glitches in the new Income Tax portal which the company has developed, Parekh said there has been steady progress and over 19 million I-T returns have been filed. Several statutory forms are now available, and 200,000-300,000 returns are being filed daily. Parekh said 96 per cent of the returns from previous years have “already been processed and over 1 crore (10 million) current year returns have been processed which was part of the benefit of this system.”

The company added 11,664 people during the quarter, taking total headcount to 279,617.

It is expected to add 45,000 freshers during the ongoing fiscal year.

Attrition increased to 20.1 per cent during the quarter from 13.9 per cent in the April-June period. It was higher for employees with three to six years’ experience.

“The talent demand is significantly higher than what we have seen historically. Usually, it (cost of hiring) is 3 per cent of revenue and now it has gone up to 5 per cent. …. the supply and talent issues will persist till new freshers get deployed and more reskilling happens,” Rao said.

Despite having an excellent mix of digital and legacy components contributing to overall growth, Infosys needs to watch out for its attrition rate, said Gartner Inc senior director analyst DD Mishra.

“Most of its revenue comes from North America, which has room for review as the emerging regions also bring good opportunities,” Mishra said.

The company said it had completed on September 8 a share buyback from the open market, at an average price of about Rs 1,649 apiece, compared to the maximum buyback price of Rs 1,750 per share.

Consequently, its share capital has reduced by 1.31 per cent, it said.

With the buyback, the company has returned about 82 per cent of its free cash flow for FY20 and FY21 through dividends and buyback, it said.

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