Infosys, the country's second largest software exporter, on Friday said its net profit rose 4.9 percent on quarter to Rs 3,606 crore during July-September on a revenue of Rs 17,310 crore, which rose 3.14 percent. Dollar revenue was up 3.4 percent at $2,587 million. Though the numbers were above estimates, the company's revenue guidance came in as a major disappointment. It is for the second time in as many quarters the company cut its guidance.
Here are the key takeaways from the earnings:
1) The company now sees its revenue growing 8-9 percent during the year, lower than the earlier projected 10.5-12 percent and the industry growth projected of xxx percent projected by Nasscom. The software lobby group is yet to reduce its guidance but has indicated it may have to as the situation unfolds going forward.
2) The reason for the cut in guidance is decision by Western clients to hold back spending as they wait to see how November's US presidential election and Europe's Brexit drama play out.
3) However, the cut in guidance was more or less expected as the company during the quarter had warned about a weakness in the banking, manufacturing & retail verticals. It had also said that banking major RBS had cancelled a contract resulting in ramp down of workforces. RBS had decided to shelve a plan to list a new bank in Britain, for which Infosys was a technology partner.
4) Dollar revenue growth in constant currency terms for the company during was 3.9 percent on quarter and volume growth at 4 percent. These two numbers were much better than its larger rival TCS, which a day earlier had said its corresponding numbers were just 1 percent and 1.3 percent.
5) CEO Vishal Sikka, however, has stuck to its 2020 revenue target of $20 billion. He expects FY17 margin to be in range of 24-25 percent. He said that during the course of Q2 the company saw signs of cautious client behaviour. also contributed to the lowering of revenue guidance, Sikka said.
6) Reliance Securities said in a note that Infosys bounced back strongly following an underwhelming performance in the previous quarter. The key disappointment was the higher-than-expected downgrade in constant currency revenue growth guidance. "A positive was large deal wins worth US$1.2 bn which is also stronger than the last three quarters (US$800mn in 1QFY17, US$757mn in 4QFY16 & US$360mn in 3QFY16)," it said.
7) Manik Taneja and Ruchi Burde of brokerage firm Emkay Global are of the opinion that the guidance cut in is a mix of both industry challenges and some bit of management conservatism. "...Qualitative commentary still remains optimistic about its competitive positioning and claims of gaining market share," they said.
8) The back-to-back disappointing results from Indian majors have raised concerns that Indian software story may be coming to an end. Bloomberg columnist Andy Mokherjee said in an article that Indian software "died on Friday after a short battle with newer digital technologies".
9) But not everybody is agreeing. Select investors feel the sector that is a showpiece of the Indian economy is still well placed in the longer term. "We don't believe that the structural story of outsourcing has changed," Nilesh Shetty, a fund manager at Quantum Asset Management Company Pvt Ltd, was quoted as saying in a Reuters report. "The engineering talent in India is still priced a lot lower than the developed world."