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Infosys turnaround continues as Q2 sales beat expectations, FY14 revenue guidance raised

India’s second largest software services exporter Infosys reported a better-than-expected revenue growth for the second quarter and also raised the lower end of its revenue guidance for the full year, signs that turnaround at the once bellwether that has lost ground to its rivals in recent years is clearly gaining momentum.

The Bangalore-based company has faltered in recent years. It took its foot of the revenue accelerator as it focused more on its margins, in turn allowing rivals like Tata Consultancy Services to race quite ahead.

In the last several months,however, the company has given ample signs that it is now more flexible when its comes to dealing with clients on pricing.

In the July-September quarter, Infosys’ net profit rose near 2 percent year-on-year (1.4 percent sequentially) to Rs 2,407 crore. Its revenue was up 32 percent from a year ago (15 percent quarter-on-quarter) to Rs 12,965 crore.

In US Dollar terms, however, its net profit was down 11 percent YoY (-8 percent QoQ) to USD 383 million, due to visa related charges.

Its revenue was up 15 percent YoY (4 percent sequentially) to USD 2,066 million.

This was the first full quarterly results since founder Narayana Murthy returned to the company as executive chairman.

Software services exporters have been boosted by a pickup in the US market (largest revenue geography for firms like Infosys) and the recent depreciation in the Rupee.

Infosys raised its lower end of what some may argue conservative guidance on Friday. It now expects its full year (FY14) revenue to rise 9-10 percent, compared with its 6-10 percent it had forecast earlier. Industry body NASSCOM has forecast 12-14 percent growth for the full year.

“During the quarter we witnessed broad-based volume growth, robust client additions, five large deal wins and increased sales momentum of our big data and cloud offerings. This growth is a result of our focus on execution, which helps our clients achieve their objectives. We will continue with planned investments and initiatives to explore new avenues of growth. We remain watchful of the sustainability of improving global economic fundamentals,” said SD Shibulal, CEO and MD.

Infosys and its subsidiaries added 68 clients in the quarter. 2,964 employees were added on a net basis in Q2 and as of Sept 30th it had 1,60,227 employees. 

The street cheered the results with the stock closing up 4.7 percent to Rs 3,274.50 on NSE. The shares hit a 52-week high of Rs 3,338 earlier in the session.

Here’s a quick view of how some analysts viewed Infosys’ second quarter performance.

“Infosys reported better than expected results. Operating cash flow improved to 123 percent of EBIT (earnings before interest, taxes) that is one of the highest in recent years (was 79 percent of EBIT in Q1 FY13). We believe the strength and continued improvement in cash flows is one of the best indicators of the underlying momentum and strength of business for Infosys. Maintain Overweight as the stock remains significantly undervalued in our view.” – Morgan Stanley.

“We believe that the guidance is conservative and strong growth metrics this quarter raise the probability of beating the guidance at top end. We remain positive on the stock given improving growth trajectory and reasonable valuations. Maintain Buy.” – Religare.

“We do not believe that investors must read anything amiss into growth implications for the coming two quarters due to the unchanged USD revenue guidance (at the upper-end). It’s all about the significant revenue beat, which will please investors, in our view.” – JP Morgan.

“The results demonstrate that the company is on the mend. An improved demand environment has also helped overall numbers. Performance is the best way to assuage concerns on reorganisation and senior management exits. That the company has done it for the second consecutive quarter is creditable.” – Kotak.











I am a business journalist by profession and have close watch on equity markets and developments across FMCG, Retail, real estate, auto and information technology sectors in India. When not writing, I am an avid photographer ( and Arsenal FC fan. I also love train spotting.

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