Country’s second largest software services exporter Infosys on Friday beat the street expectation by reporting about 4 per cent increase in its consolidated net profit for the April-June quarter. Reacting to the results, Infosys shares shot-up by nearly 15 per cent in early morning trade to Rs2,905 on the BSE, one of its highest in almost three months.
The Bangalore-based firm, which last month saw the return of its co-founder NR Narayan Murthy in the backdrop of a below than expected performance in the past quarters, added that wage hikes announced in June would have an impact of about 300 basis points on its margins in the next quarter.
The company’s consolidated net profit rose by 3.7 per cent to Rs2,374 crore for the April-June quarter against Rs2,289 crore in the year-ago period. Its consolidated revenues rose 17.2 per cent to Rs11,267 crore from Rs9,616 crore in the year-ago period.
“Despite facing an uncertain macro environment, changing regulatory regime and a volatile currency environment, we have done well in Q1 and are cautiously optimistic about rest of the year,” Infosys CEO and Managing Director S D Shibulal said.
While, India’s second largest software services exporter kept its US Dollar revenue guidance unchanged at 6-10 per cent for 2013-14 fiscal, it revised its rupee revenue guidance upwards to 13-17 per cent from 6-10 per cent earlier on account of depreciation in the Indian currency.
Infosys maintained its “cautiously optimistic” approach due to cross currency movements and regulatory changes in the US, Canada and Australia.
“We operate in an environment which has several challenges. Discretionary spend continues to be under stress. There are regulatory changes happening in various parts of the world. We have seen changes in Canada and as recent as a week back, in Australia. US immigration bill is in progress. We remain cautiously optimistic. We have not revised our guidance,” Shibulal said.This quarter, Infosys lost $13.4 million in revenue on account of cross-currency movements, Shibulal added.
On the issue of wage hike affecting margins, Infosys CFO Rajiv Bansal said: “We have announced compensation increases for FY’14 effective July, which will affect our margins in the future quarter.”
last month, it had announced an average 8 per cent hike for Indian employees and about 3 per cent for those overseas.
Infosys said the discretionary spend by clients continues to be under stress, which is also affecting margins.
“Our dependency on discretionary spend actually has gone up. It is almost 34 per cent of our revenue. So our dependence on the discretionary spend is high and that continues to be under stress,” Shibulal said.
On discretionary spend, Bansal said: “we are not seeing an uptick in this in the market and that is likely to put more pressure on pricing because we have disproportionately higher percentage of our revenues coming from discretionary spend.”
In US dollars, Infosys’ consolidated net profit rose by 0.5 per cent to $418 million in April-June quarter this fiscal from $416 million in the same quarter of 2012-13. Consolidated revenues rose 13.6 per cent to $1.99 billion against $1.75 billion in the same period last year.
It added 66 clients in the April-June quarter taking the total number of its active clients to 836, which includes 7 large deals.
“There have been strong client additions. We added 66 new clients in Q1. In fact, the largest client we have has grown by 11 per cent this quarter and the top 10 have grown by 4 per cent this quarter,” Shibulal said.
The firm added three USD 100 million clients with the largest additions -18- coming in the $1 million bracket.