Infosys Q1 Results: Revenue Growth Guidance For FY22 Hiked; Margin Contracts

Infosys Ltd.’s quarterly revenue rose, led by large deal wins and increased client spending on digital services amid the Covid-19 pandemic. That prompted the software services exporter to raise its growth guidance for the ongoing fiscal.

Revenue of India’s second-largest software services provider rose 6% over the preceding quarter to Rs 27,896 crore in the three months ended June, according to its exchange filing. That compares with the Rs 27,655-crore consensus estimate of analysts tracked by Bloomberg.

The Bengaluru-based IT company raised its constant currency revenue growth estimate to 14-16% for the ongoing fiscal from 12%-14%. It, however, maintained operating profit margin forecast at 22-24% for the year.

Infosys Q1 Highlights: (Quarter-On-Quarter)

  • Net profit rose 2.3% to Rs 5,195 crore, against the Rs 5,378-crore forecast.

  • EBIT increased 2.5% to Rs 6,603 crore. Analysts had pegged the operating income at Rs 6,774.5 crore.

  • EBIT margin contracted 80 basis points to 23.7%, owing to wage hikes.

Deal wins and client investment towards cloud computing, artificial intelligence and internet of things have helped the Indian IT companies rebound during the pandemic. They had seen costs rise and lost billings as trade stalled when the Covid-19 pandemic struck last year.

Among other deals during the reported quarter were Infosys’ collaboration with Archrock — a natural gas compression services and equipment provider — to build and implement a platform to enhance field services and operations.

The company won deals worth $2.6 billion during the April-June period. It had won deals worth $2.1 billion in the fourth quarter and a record $14.1 billion in the fiscal ended March 2021.

Margin Pressure

The full impact of the salary hike was seen during the first quarter of the ongoing fiscal. That, along with resumption of discretionary spends, contracted Infosys’ margin.

“We remain confident of delivering on the margin guidance, underpinned by our comprehensive cost optimisation programme, despite increasing cost headwinds arising largely from compensation review, talent acquisition and retention,” said Nilanjan Roy, chief financial officer, Infosys.

Larger rival Tata Consultancy Services Ltd., too, saw its margin contract during the quarter because of wage hikes, while its revenue rose.

Segment-Wise Performance

All of Infosys’ key verticals witnessed growth over the preceding quarter.

Other Q1 Highlights:

  • Digital formed 53.9% of the total revenue.

  • Attrition for the quarter stood at 13.9% compared with 10.9% as of March.

  • Infosys added two new $100-million+ clients during the quarter against 32 in the preceding three months.

  • North America continued to contribute 61.7% to the company’s overall revenue.

Shares of Infosys closed 2.10% higher before the results were announced, compared with a 0.26% gain in the benchmark Nifty 50.

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