Infosys result beats expectations second quarter in a row

There is encouraging news from Infosys, India's third largest IT services exporter, which opened the technology earnings calendar for the September quarter on Friday.

The company, which struggled to meet investor expectations over the last two years, delivered top-line numbers far higher than what the Street expected. Infosys reported dollar revenues of $2.06 billion for the quarter, up 3.8 per cent sequentially - analysts were expecting a growth of about 2.6 per cent.

In rupee terms, Infosys pulled in revenues of Rs 12,965 crore, up 15.1 per cent over the previous quarter. The company reported net profits of Rs 2,407 crore, or Rs 42.12 a share, versus Rs 2,374 crore, or Rs 41.54, a share in the June quarter.

This is the second consecutive quarter where Infosys has beaten market expectations on revenue. In the June quarter, the company grew its revenues 2.7 per cent sequentially, surprising analysts.

Although favourable currency movements would have helped Infosys, the results of the last two quarters point to a turnaround in the company and potentially a return of discretionary spending in the market. Infosys said it has added 68 clients during the quarter.

The company upped its revenue guidance for 2013/14 to 9-10 per cent versus 6-10 per cent seen earlier. Considering the momentum in the first half of the year, the company is well set to beat this guidance.

Analysts think Infosys is being coy - historically, under Chairman N.R. Narayana Murthy, the company always under-promised and over-delivered.

"Infosys results have been above estimates. While the volume growth was in line, average realisation increase has come as a positive surprise. On the other hand, margins have come in slightly below estimates," Dipen Shah, Head of Private Client Group Research at Kotak Securities noted.

"We believe that the company should be able to do better than the guidance given for 2013/14, which, we feel, is conservative. The company has reported consistent revenue growth performance over the past couple of quarters and it has levers to improve margins further from current levels. To that extent, we expect the valuations to improve from the current levels," he added.

S.D. Shibulal, CEO and Managing Director, said the firm is cautious because the December and March quarters are traditionally soft quarters for the industry because of the large number of holidays.

"The retail sector is slowing down. We are yet to have a stock of large deals. So it is too early to declare a secular trend," he said during a press conference, commenting on the stability of the business.

The CEO said the company is making internal changes that would result in stable revenue and profit growth going ahead. The chairman's office, he added, is focused on four things - cost optimisation, sales improvement, higher productivity and increasing offshoring.

Meanwhile, the company declared an interim dividend of Rs 20 per share.

The company's operating margins came in at 21.9 per cent for the quarter, down from 23.6 per cent in the June quarter.

Infosys' administrative expenses jumped as it made a provision of Rs 219 crore towards visa related charges.  The United States government is investigating the company's compliance with Form 1-9 and use of B-1 visas. Infosys said it is engaged in discussions with various government departments and will not be able to provide any further details.

In its annual report, Infosys had mentioned that the US Department of Homeland Security, which was reviewing the company's employer eligibility verifications, had found errors in a "significant percentage" of Form I-9 reviewed.

Form I-9 is used for verifying the identity and employment authorisation of individuals hired for employment in the US. Fines and penalties could be imposed on the company.

Infosys shares jumped 4.79 per cent on Friday to close at Rs 3,273.90. The BSE Sensex closed at 20,528.59, up 1.26 per cent.