Infosys Beats Street Expectations But Fears 'Some Headwinds,' Cuts Dollar-Terms Forecast

BANGALORE, India -- Infosys Ltd., India's second-largest software services provider, posted its fastest quarterly revenue growth in four years, excluding acquisitions, and beat fiscal second-quarter expectations, but signaled uncertainty ahead by cutting its full-year forecast in dollar terms.

Shares, which had increased by about 19 percent from the closing price on Jan. 1 to Friday, lost about 2.5 percent in early Mumbai trading on the day the Bangalore company also announced that its chief financial officer has resigned to pursue a career outside the company.

Infosys, and rivals Tata Consultancy Services Ltd. and Wipro Ltd., lead an outsourcing model predicated on cheap labor in India. The model is increasingly being challenged by cloud computing alternatives for both computing hardware and software applications, even as the use of America's H1-B visas by Indian companies is set to become an election issue in the U.S. again.

Through the remaining two quarters of the fiscal year that ends March 31, "traditionally a difficult half for the (outsourcing) industry, there are some headwinds among the clients that we've talked to," CEO Vishal Sikka said, in a discussion of the results with local television channels. A one-off $23 million bump in the September-quarter revenue from one client also helped the period's growth, he said.

Profit for the three months ended Sept. 30 rose to 33.98 billion rupees ($519 million) from 30.96 billion rupees ($511 million) for the year-ago period, beating the 32.89 billion-rupee (about $507 million) average of analyst estimates polled by Reuters. Sales rose 17.2 percent to 156.35 billion rupees ($2.39 billion) from the year-ago period.

In dollar terms, second-quarter sales rose 8.7 percent year-on-year, Infosys said, in a press release. Sales rose 6 percent over the June quarter, and 6.9 percent in constant currency, beating the 4 percent constant-currency expectation by analysts at Bank of America Merrill Lynch.

Revenue for the full year, which ends March 31, 2016, will rise between 6.4 percent and 8.4 percent in dollar terms, compared with the 7.2 percent to 9.2 percent projection the company had made after the June quarter. The company has retained its 10 percent to 12 percent growth forecast in constant currency, which it anticipated at the beginning of the fiscal year.

The dollar-terms reduction is widely seen as owing to the fall of major currencies worldwide versus the U.S. dollar rather than the weakening of prospects at the top IT companies.

"Dollar-terms revenue growth is likely to be impacted by 60-80 basis points," for India's top five IT services companies for the September quarter, Bank of America Merrill Lynch said in an Oct. 6 report. This was due to the depreciation of currencies, including the Australian dollar (8 percent) and the Brazilian real (about 20 percent), according to the report.

CFO Rajiv Bansal, who has served at Infosys for 16 years and was elevated to the top finance position about three years ago, will step down at the close of business Monday, but stay on through December to help with the transition to M.D. Ranganath, his successor named by the company.

Bansal's elevation came about two years before Infosys named Vishal Sikka, a former SAP SE executive, as CEO in a turnaround effort at the company that had increasingly lagged peers and the industry. The company is now widely seen as beginning to succeed in that effort, even though staff churn remains high, at over 19 percent. At competitor TCS, the attrition rate stood at 15.1 percent through the 12 months ended June 30.

During the September quarter, Infosys won 82 clients, taking the total to 1,000. It bagged five large contracts with a "total contract value" of $983 million, which is an estimate of the total revenue likely to be generated from those contracts over the life of those engagements. The quarter also marked the second consecutive three-month period Infosys has posted a 4 percent-plus quarter-on-quarter growth in revenues.

"The company is well placed, the fundamentals are good, the growth has come back ... if you can be part of a turnaround story of a company, that's the best experience you can get as a CFO. I'm glad that I was part of that journey, while it's still a long way to go," Bansal said, in a common interaction with various local television stations.