Forget that special dividend, we need cash: What Infosys said post results

Infosys, India’s second-largest software services exporter, posted a quarterly profit which missed analyst estimates, and raised the lower end of its revenue guidance for the fiscal year ending in March.

Consolidated net profit for the three months to September 30 was Rs 2407 crore compared with Rs 2369 crore in the same period a year earlier, the Bangalore-based company said in a statement Friday.

According to Infosys CEO SD Shibulal the company witnessedbroad-based volume growth during the quarter, made robust client additions, won five large deal and increased sales momentum of big data and cloud offerings.

“This growth is a result of our focus on execution, which helps our clients achieve their objectives.” said SD Shibulal, CEO and Managing Director.

Following are the highlights of what the management has to say about the Infosys results in an exclusive chat with CNBC-TV18:

1. Infosys won five to six large deals worth over $50 million.

The company added 68 clients, of which 38 were net additions during the quarter. A majority of the deal wins (13 clients) came from North America as discretionary spending improved. Of the 38 net client additions, five were Fortune 500 companies, which is a positive for Infosys. Revenues from the large deals will be realised in the next quarter.

2.Infosys is cautious not conservative.

Even though Infosys raised the lower end of its fiscal full-year revenue guidance to 9-10 percent, it did not do so with the upper end of the guidance given the volatile environment in global markets.

Shibulal said Infosys is cautious on guidance, deal pipeline and client additions even though it has not heard of any budget cuts from US clients as of now.

If the US government shutdown prolongs, consumer spend in the US will once again turn weak which could impact Infosys’ retail business in the US.

3.Seen strong client additions, highest ever in any quarter

Shibulal said that the number of million dollar clients have gone up to 59 during the quarter, which is the highest ever in the company’s history.

“We are pursuing and winning large outsourcing deals. Service innovations like Global Agile, Virtual Operations and Integrated Application Management continue to provide high levels of differentiation for us in the marketplace and have enabled wins across industry verticals,” said Shibulal.

4. Sustainable relationship model deals with client concerns

Shibulal said the company’s relationships with clients has remain unaffected despite the churn at the top management.

“Relationships with clients is multi-level and not based on one single relationship,” he said.

He added that the company’s leadership is deep and the Tier 1, 111 and III management consists of over 500 people.

On Ashok Vemuri’s exit, Shubulal said, " These are high performers with high aspirations and want to move on but Infosys has a deep leadership with 500 people at the Tier 1, 111 and 111 level."

5. Rupee depreciation not factored in when negotiating with clients, pricing will remain stable

According to Shibulal, pricing will remain stable in the next few quarters while it is marginally up by 0.6 percent during the current quarters.

He, however, cautioned that Infosys continues to win large outsourcing deals which are very price sensitive as the rupee depreciation is not taken into account.

6. Next two quarters will be about growth and investment, not margins

The company expects to maintain margins at current levels and is ensuring that the company is investing the suprlus profit back into Infosys, its employees and the sales engine.

Infosys CFO Rajiv Bansal said for the next two quarters the focus will be growth and the right investment, which would eventually improve the margins of the company.

7. Infosys has set aside $35 million for possible visa settlement, legal costs

Currently Infosyshas set aside $35 million for possible visa settlement, legal costs in the US .

However, until Infosys’ discussions with the US justice department and other entities are completed, it is not clear if more funds will be required to cover the legal costs, said Infosys BPO head V Balakrishnan.

8. Do not expect any special divided.

Infosys CFO Rajiv Bansal dashed all hopes of shareholders getting a special dividend any time soon despite the company sitting on a cash pile of $4.3 billion.

“Given the volatility, Infosys needs its cash right now… I do not see the need for a special dividend right now,” said Bansal.

9.Lodestone integration is complete

While acquisitions will continue to be part of Infosys’ growth strategy, the company has finally finished integration of operations and management with Lodestone.

Last year, Infosys bought Zurich-based Lodestone Management Consultancy for $350 million. Lodestone brings 850 employees which 750 are front line delivery personnel. Lodestone’s 200 clients span industries such as life sciences, consumer goods, automotive, financial Services, banking and industrial equipment. across a profitable and strategic SAP customer base.

**10.**Infosys applies for 21 unique patent application in US and India; adds nearly 3000 employees

During the second quarter, Infosys applied for 21 unique patent applications in India and the US. With this, Infosys has 536 patent applications undergoing various stages of patent prosecution in India, the U.S. and other jurisdictions.

“We have been granted 119 patents by the United States Patent and Trademark,” said Shibulal.

Infosys also said that company saw a net addition of 2,964 employees during the period.

Overall, 12,168 employees joined Infosys and its subsidiaries during the July-September quarter.