Bangalore: Beating expectations, Infosys on Friday reported 13 percent jump in consolidated net profit for the third quarter to Rs 3,250 crore, helped by increase in business and clients from North America, as also from India.
The country's second largest software services firm's consolidated revenue rose 5.9 percent to Rs 13,796 crore in the quarter ended December 31, while it maintained its revenue outlook for the entire fiscal ending March 31.
Increasing its focus on software products and new age solutions like Artificial Intelligence, Internet of Things, Infosys also said it has expanded its innovation fund from the USD 100 million to USD 500 million, which will be used to invest in young firms world-wide.
Reacting to the results, Infosys shares rose by over 5 per cent to Rs 2,073.60 apiece on the BSE, lifting the overall market.
Commenting on the firm's performance, Infosys CEO Vishal Sikka said: "We are excited by several breakthrough results in Q3. Our 'renew and new' strategy, is being received well by our clients and our ecosystem and we are already seeing its early adoption."
In dollar terms, Infosys posted 12.7 percent jump in net profit to USD 522 million, while revenue was up 5.6 percent to USD 2.21 billion in the third quarter.
Brokerage firm Angel Broking's Sarabjit Kour Nangra said that the third quarter profits are better than expected, while a sequential growth of 0.8 percent in revenues at USD 2.2 billion is also in line with the expectations.
Infosys COO U B Pravin Rao said: "During the quarter, we saw broad-based volumes growth, increased utilisation and strong client additions. We have made 100 per cent variable payout for Q3 and have seen a further decline in attrition as a result of multiple initiatives taken over the last few quarters."
During the third quarter, 2014-15, the firm added 4,227 people (net), taking its total headcount to 1,69,638. Infosys and its subsidiaries also added 59 clients (gross) during the quarter.
On a quarter-on-quarter basis, Infosys' net profit was higher by 4.9 percent, from Rs 3,096 crore in the July- September period; revenue grew 3.4 percent from Rs 13,342 crore in the second quarter of the 2014-15 fiscal.
"Our sequential revenue growth in Q3 was adversely impacted to the extent of 1.8 percent due to US dollar appreciation against other major currencies," Infosys CFO Rajiv Bansal said.
Speaking from a geographical perspective, Rao said: "We have seen good demand in North America barring few verticals, Europe is a bit intense."
North America grew by 2.1 percent sequentially, while India grew by 14 percent quarter-on-quarter. Europe declined by 2.1 percent sequentially and Rest of the world declined by 2.3 percent q-o-q.
"If you look at it from verticals perspective, financial services we are seeing good traction with more traction in Europe than in America. If you look at manufacturing we are seeing fair limited growth and pipeline," Rao added.
Sikka said Infosys achieved utilisation rates which are highest in the last 11 years. He also announced a bonus variable pay of 11 per cent for the employees in a bid to check the attrition.
"We saw drop in attrition in absolute terms, in Q3 we saw attrition of 8,900 this quarter from 10,100 in Q2 and 10,600 in Q1. We are seeing continued drop in attrition which, we continue to monitor and continue to be excited about as we look to the future.
As a result of this achievement we are announcing 100 per cent variable bonus pay out for our units in the company," he added.
Attrition level inched higher to 20.4 percent in the reported quarter compared to 20.1 percent in September 2014 quarter and 18.1 percent in October-December 2013 quarter.
Utilisation rates grew to 75.7 percent (including trainees) and 82.7 percent (excluding trainees) in the said quarter.
Sikka commended India for having a "thriving start-up scene".
"So one of the things I am very excited about is our board has approved expanding our start-up plan firm from USD 100 million to USD 500 million and we will dedicate a part of that investing in India," Sikka said.
North Americas contributed 61.6 percent of the quarter's revenues, while Europe, India and Rest of the World (RoW) markets accounted for 24 percent, 2.5 percent and 11.9 percent respectively.
Liquid assets including cash and cash equivalents, available-for-sale financial assets, certificates of deposits and government bonds were at Rs 34,873 crore as on December 31, compared to Rs 33,616 crore as on September 30.
The company has decided to expand its Innovation Fund from the current USD 100 million to USD 500 million to support the creation of a global eco-system of strategic partners.
Infosys has also pledged Rs 254 crore this fiscal towards Corporate Social Responsibility (CSR) which is primarily being carried out through the Infosys Foundation, its philanthropic arm.
Meanwhile, analysts termed the firm's results as above market expectations.
Angel Broking VP Research IT Sarabjit Kour Nangra said: "Infosys announced its 3QFY2015 results, better than expected."
The company posted 0.8 percent sequential growth in terms of revenues at USD 2.2 billion, exactly in line with expectations.
However, Greyhound Research CEO Sanchit Vir Gogia believes that the growth of 3.4 percent Q-o-Q in Indian rupees and 0.8 percent in USD is sluggish.
"Infosys is not the only company that has been affected by the fluctuation in currency. Q3 is a seasonally weak quarter for all Indian IT services companies due to fewer billing days amid festive holidays in key markets -- India, US and Europe," he added.
While Vishal Sikka has done a great job in mapping the long term strategy, the market will look out for softer signs of improvement in short and medium term, he said.
"Key thing to look out for in the coming quarter is their utilisation and attrition rate. We believe that if Vishal can reduce attrition in the beginning of the quarter that will be a good start and a positive step towards winning internal confidence," Gogia added.
Like its peers (such as Accenture and IBM), Infosys also needs to go beyond pure commentary on Digital, Social Media and Analytics portfolio and attach concrete financial outcomes and guidance in the coming quarter, he said.
Motilal Oswal Securities IT Analyst Ashish Chopra Infosys results are in line with their expectations.
"The margins were ahead of our estimates. We believe going forward, while the magnitude of transformation on which it has embarked is likely to take time, we believe the focus on 'renew and new' is the right approach and will equip the company with capabilities for sustained profitable growth," he said.
This is probably the first time that Infosys has announced its results during market hours, as against the earlier practice of doing it before the market opening.
The company has always been among the first to release the quarterly results. TCS and Wipro will come out with their results next week.
Speaking to reporters post result announcement, Sikka said: "We have had great two quarters, but it is too early to tell. I'm an optimistic kind of a guy, so I'm very optimistic about the future in general. I think there is a tremendous need for great software..."
He added that there is pressure in certain industries because of what is going around in retail, manufacturing, energy, etc.
"However, I'm convinced the need for new kinds of things will continue to be there, and in very large demand," he added.
To a question if Infosys is on way to again take over the bellwether mantle, Sikka said: "...It is too early to say that and I would not quite jump to that conclusion as much as I would love to.
"We have seen early signs...Of our strategy taking effect. That's for sure. There are lots of signs already that the strategy is making its way into the business, but I think in terms of revenue it will take some time."
Asked if the company is preparing for big acquisition, Sikka said: "We are very interested in looking at and possibly acquiring innovative companies.... You should expect sooner rather than later some news on this."
Sikka said he is very excited about the firm increasing its innovation fund.
"While this fund is for global use, we also want to have a dedicated focus especially on Indian start-ups.
The fund is separate from the mergers and acquisition plans of Infosys.
"It is just something we will invest in startup partnerships. We will run it from our corporate centre, and over the next few weeks we will establish how we will use it," he added.
Sikka added that more details about the plans will come out over the next few weeks.
"We are still thinking about how we will engage with startups and probably over the next few weeks we will put an outline about that in place. You can never say no to merging startup engagements with core businesses, but I think that would not be the right way to go about it," he said.
