Infosys narrows annual revenue guidance range after Q3 profit beat

Last Updated: Fri, Jan 13, 2017 13:43 hrs
An employee of Infosys stands at the front desk of its headquarters in Bengaluru

MUMBAI  - Infosys Ltd, India's second biggest software services company, narrowed its full-year revenue guidance range after posting a better-than-expected 7 percent rise in third-quarter profit that was helped by new client wins.

Bengaluru-headquartered Infosys said it expected revenue to grow between 8.4 percent to 8.8 percent in constant currency terms in the fiscal year to March. Its earlier guidance was for an increase of between 8 percent and 9 percent in full-year revenue.

Indian information technology companies such as Infosys have struggled in 2016 as major clients in the United States and Europe, their biggest markets, held back discretionary spending, awaiting clarity on policy changes under U.S. President-elect Donald Trump's administration, and changes following the UK's Brexit move.

A leading Indian IT lobby group late last year forecast weaker revenue growth in 2017 for the $150 billion showpiece sector due to an uncertain global political environment.

Infosys will speed up acquisitions in the United States, its biggest market, and recruit heavily from university campuses there to beat a more protectionist visa regime expected under Trump's administration, the company's chief operating officer Pravin Rao told Reuters in October.

Bigger rival Tata Consultancy Services Ltd said on Thursday it would deepen a focus on expanding its digital business, after beating analyst estimates with a 10.9 percent rise in profit for the quarter to December.

But some analysts expect a pickup in the U.S. banking industry and a recovery in demand in Europe as Brexit fears ease to boost IT spends.

Infosys said it added 77 clients during the three months to December, including two clients in the $75 million-plus revenue category.

Net profit rose to 37.08 billion rupees ($544.03 million) for the three months to Dec. 31 from 34.65 billion rupees a year earlier, ahead of the 35.44 billion rupees on average expected by analysts.

The company's revenue in the third quarter rose 8.6 percent to 172.73 billion rupees, roughly in line with analysts' estimates of 173.01 billion rupees.

($1 = 68.1575 Indian rupees)

Emkay securities on Infosys post Q3 results: Infosys (ACCUMULATE, Current Market Price Rs 1000, and Target Price Rs 1080) View on December 2016 quarter results: Revenues fall short on expectations; margins hold steady

Infosys' December 2016 quarter revenue performance falls short of expectations with a 1.4% QoQ US$ revenue decline (-0.3% QoQ in constant terms) on account of drag at top clients (top 1/5/10 client revenues down sharply by ~13%/7.4%/9.1% QoQ, we await more clarity around this). EBIT margins have surprised positively despite the muted revenue performance with EBIT margins at 25.1% (up 20 bps QoQ, V/s est of ~30 bps QoQ decline). Net profit beat is a function of better margins and higher other income despite revenue miss.

FY17 constant currency outlook pared to 8.4-8.8% c.c revenue growth (V/s 8-9% c.c revenue growth outlook earlier). This implies a 0.3-1.8% c.c revenue growth guidance for March 17 quarter (V/s 1.9% QoQ c.c revenue growth seen in March 2016 quarter). We are slightly disappointed by the company’s revenue performance in North America and top clients and await more clarity from management on this.

We do not see any material changes to our current FY18/19E EPS are at Rs 68/76 respectively. We currently have a ACCUMULATE rating on Infosys with a Target Price of Rs 1080.



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