Infosys Profit Beats Estimates on Orders; Keeps Outlook

Infosys Ltd. (INFO) posted first-quarter profit that beat analyst estimates as India’s second-largest software services company won more orders.

Net income rose 22 percent to 28.9 billion rupees ($480 million) in the three months ended June from 23.7 billion rupees a year earlier, Bengaluru-based Infosys said in a statement today. That beat the 26.5 billion-rupee median of 33 analysts’ estimates compiled by Bloomberg. The company maintained its full-year forecast for sales growth.

Billionaire N.R. Narayana Murthy, who returned as chairman in June 2013 to help revive growth, boosted margins and is set to hand control of the software exporter he co-founded to Chief Executive Officer designate Vishal Sikka. Infosys won contracts last quarter from companies including Orange SA and Boston-based Eastern Bank.

“Things are more or less stabilizing. From here on we will not see the same volatility,” said Pankaj Kapoor, a Mumbai-based analyst at Standard Chartered Securities Ltd. “They’ll still have slower growth, but things will be stable. That is the big message from this quarter.”

Infosys kept its April forecast for full-year sales growth in U.S. dollar terms of 7 percent to 9 percent.

Infosys rose 1 percent to 3,326.65 rupees at the close in Mumbai trading, while the benchmark S&P BSE Sensex Index fell 1.4 percent. Industry leader Tata Consultancy Services Ltd. (TCS) gained 1.8 percent.

Photographer: Namas Bhojani/Bloomberg

N.R. Narayana Murthy, co-founder and chairman of Infosys Ltd., right, with incoming chief executive officer Vishal Sikka at a news conference in Bangalore on June 12, 2014. Close

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Photographer: Namas Bhojani/Bloomberg

N.R. Narayana Murthy, co-founder and chairman of Infosys Ltd., right, with incoming chief executive officer Vishal Sikka at a news conference in Bangalore on June 12, 2014.

CEO Succession

Revenue climbed 13 percent to 127.7 billion rupees, compared with the 128 billion rupee median of analyst estimates.

“We saw positive trends in our large deal wins during the quarter,” U.B. Pravin Rao, chief operating officer, said in the statement. “This momentum will hold us in good stead as we focus on increasing volumes.”

Operating profit margin widened to 25.1 percent in the quarter, compared with 23.6 percent in the year earlier period, according to data compiled by Bloomberg.

“We improved operational performance as a result of our cost optimization initiatives and a focus on increasing productivity and utilization,” Rajiv Bansal, chief financial officer, said in the statement. “This partially offset the impact of compensation increases for our employees.”

New CEO

Sikka, 47, who was named last month to succeed S.D. Shibulal, spent 12 years at German business software supplier SAP AG and will be the first non-founder to head Infosys. The India-born California resident, who assumes charge Aug. 1, has his task cut out as Infosys seeks to retain its importance as companies move computing tasks to “cloud” programs, rather than writing the code themselves.

More than a dozen executives have left Infosys since Murthy returned in June 2013 to help revive revenue growth. Murthy stepped down as executive chairman last month and will leave the company on Oct. 10.

Infosys, which designs and builds software programs, maintains computers and provides IT and outsourcing services for customers including the District of Columbia and Toyota Motor Corp., added 61 clients last quarter.

Worldwide information technology spending growth will slow to 4.1 percent this year, compared with an earlier 4.6 percent projection, researcher International Data Corp. said May 16.

IT Spending

“IT spending has been volatile since the beginning of the year,” Framingham, Massachusetts-based IDC said in the report. A slowdown in mobile-device sales will also contribute to lower growth, even as cloud computing continues to disrupt traditional IT budgets, according to the report.

Infosys reported a net addition of 879 employees in the quarter, and its attrition rate accelerated to 19.5 percent, compared with 18.7 percent in the three months ended March.

The company has reviewed employee compensation, introduced quarterly promotions and begun a fast-track for high performers to improve retention rates, CEO Shibulal told reporters today.

“Attrition is a matter of concern to us. It is definitely higher than our comfort range,” he said. “We are hoping that with all of these interventions we will see a reduction.”

To contact the reporters on this story: Bianca Vázquez Toness in New Delhi at btoness@bloomberg.net; Suresh Seshadri in Bengaluru at sseshadri1@bloomberg.net

To contact the editors responsible for this story: Michael Tighe at mtighe4@bloomberg.net Robert Fenner, Subramaniam Sharma

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