Infosys Surprises Street, Raises Guidance To 6.52%

Infosys announced their results for Q3FY13 before markets opened today. This result has beaten expectations and surprised the street. It resulted in a 16.92% rise in the stock prices of Infosys. The massive jump has been aided by a complete turnaround in the financial expectations surrounding Infosys. From doubts of meeting the guidance of 5%, the company has moved to raising its guidance for FY13.

Revenues for Infosys grew by 6.34% on a sequential basis to USD 1.911 billion. Its Operating Profit too increased to 0.491 billion, a growth of 4.03% in the same period. Its net profit remained flat having changed by 0.70% to USD 0.434 billion. This exceptional increase in revenues was supported by good traction coming from

1. The geographies of Europe and India
2. Service offerings of Business Process Management, Consulting Package Implementation & Others and Products and Platforms and
3. Verticals of Banking, Financial Services and Insurance, Transport & Logistics, Life Sciences, Healthcare and Energy & Utilities

In terms of volume, Infosys saw growth of 1.5% and in terms of pricing growth was 1.8%.

Growth was also helped by the Lodestone acquisition, excluding which the sequential revenue growth would have been 4.2%. Moreover, Infosys has been expanding its service offerings from a transaction based offering to a transactional based offering. This coupled with the non-effort based model that Infosys has been focusing on as part of Infosys 3.0, seems to be garnering well for the overall performance.

Infosys, in the quarter under review, added 89 clients as compared to the 39 additions in Q2FY13. The 89 additions include 36 from Lodestone but even after discounting this, deal wins have clearly surpassed in the quarter, making the total number of active clients reach 776. On the employee front, a net addition of 1868 was made, bringing the total number of employees to 155629. Utilisation rates still remained low. The utilisation excluding trainees came in at 73.2% in Q3FY13 as compared to 73.3% in Q2FY13.

Infosys also increased guidance for FY13 from USD 7.343 billion (5%) to USD 7.45 billion (6.52%). Having increased the guidance and having achieved USD 5.46 billion in revenues so far, it will have to strike a growth of 4.13% in Q4FY13 (revenues of USD 1.99 billion) to meet its new guidance.

Exclusive From The Conference Call With Infosys

By November, Hurricane Sandy, higher than expected furloughs and client specific shutdown of work made it feel it was difficult to meet the revised guidance. However, growth in banking product (Finacle), Consulting, BPO and Europe has helped sustain growth.

Finacle, one of the core banking software (CBS) for the banks, is a discretionary business and can see volatility in terms of growth. There were no large deal wins but traction was good from Europe, Asia Pacific and Africa. At the same time, 8 deal wins that occurred in the precious quarter helped the Consulting business to pump revenues. BPO too saw good traction with a 10+% growth this quarter. The segment added 11 new clients.

Overall, the quarter has been good in terms of deal closures. Sales delivery and pricing have helped drive revenue growth. Although numbers have been good, challenges still exist and it cannot be said that the worst is behind. The environment is volatile and this hampers long term decision making and aids the creation of ramp downs. The outlook thus is cautiously optimistic.