Infosys Quarterly Profit Rises As Clients Snap Up New ServicesBy
Asian outsourcer posted a meager rise in quarterly profit
Larger rival Tata Consultancy missed earnings estimates
Infosys Ltd. raised its annual revenue outlook after eking out a 1 percent rise in quarterly net income, as newer digital services helped it bag contracts despite shrinking client budgets.
Asia’s second-largest outsourcer of IT services forecast a 7.1 to 9.1 percent climb in revenue for the year ending March 2018 on a U.S. dollar basis. That beat analyst estimates and its own previous outlook, both of which projected growth of 6.1 to 8.1 percent.
The raised outlook suggests Infosys, a favorite sector pick of many investors, is gaining a measure of stability after initiating deep job cuts and moving into new areas such as data analytics to stem customer losses. India’s $154-billion information technology industry is grappling with increasing automation and a changing technology landscape that’s pressuring margins at companies from Wipro Ltd. to Tech Mahindra Ltd. Infosys said at a June shareholders meeting that over 11,000 jobs had been “released” due to automation.
“It is moving slowly but it seems steady. We feel the firm has achieved stability in terms of client business and overall organization,” said Sudin Apte, research director and CEO of Pune-based consultancy Offshore Insights. “It has stopped client and people exodus in the first phase and is now gaining business slowly.”
It reported earnings just a day after larger rival Tata Consultancy Services Ltd. announced a bigger-than-expected 6 percent fall in net income. Infosys posted net income of 34.8 billion rupees ($540 million) in the three months ended June, compared with the 34.3 billion rupee average of estimates compiled by Bloomberg. On a constant currency basis, it’s sticking with a prediction for 6.5 to 8.5 percent revenue growth in fiscal 2018.
Researcher Gartner Inc. forecast that global IT spending will total $3.5 trillion in 2017, a mere 2.4 percent increase from last year. Infosys however is also grappling with unique challenges.
It’s been battered this year by a series of events including a clash between its board and high-profile founders over corporate governance. Former chairman Narayana Murthy has criticized firings in the industry despite large pay hikes for senior executives such as Chief Operating Officer Pravin Rao. In a June filing, Infosys warned that activist shareholders could interfere with its ability to execute on strategic priorities and disrupt operations, but denied it was referring to its co-founders. None of them showed up at an annual shareholders’ meeting last month.
In the vital U.S. market, Infosys has been challenged by the Trump administration’s tightened rules on H-1B skilled worker visas, of which Infosys leads in usage among peers. Amid the restrictions, the company announced it would hire 10,000 workers in the U.S. over the next two years. That is likely to raise costs since salaries for skilled engineers in India are far lower.
Infosys should still be able to perform strongly despite a volatile macroeconomic environment, said Vaibhav Dhasmana, an analyst at Jefferies India. A stabilizing consulting business and strong uptick in spending in sectors such as manufacturing and financial services could bolster revenue, Dhasmana wrote in a note last month.
“It has managed to engage with clients again but yield has been a bit slow,” Apte said. “It was lagging the market in terms of growth but has now managed to get back to market average, and even slightly better.”