Infosys Q3 profit up 7 percent as financial clients spend; full-year forecast sharpened

Abhishek Chinnappa / Reuters

Infosys, India’s second-biggest software services provider by revenues, reported a 7 percent rise in profits for its fiscal third quarter, and joined larger rival Tata Consultancy Services in signalling a return to spending among US financial clients, the sector’s biggest customers.

Profits for the three months ended Dec. 31 rose to Rs 3,708 crore from Rs 3,465 crore for the year-earlier period, Infosys, which counts JP Morgan Chase, Bank of America, Citigroup, Vodafone, BP Plc and Johnson Controls among its clients, said in a press release on Friday.

“I’m very optimistic about banking and financial services,” CEO Vishal Sikka told reporters in a webcast discussion of the results. Sales in the vertical, which accounts for about third of the company’s revenues, grew despite a more than 1 percent hit to revenues “at the company level” from a large order cancellation from the Royal Bank of Scotland, Sikka said.

Royal Bank of Scotland scrapped a plan to build a new bank in Britain, which cost Infosys work involving 3,000 of its staff, Infosys said in a statement in August.    

Among financial clients, “generally, we expect the shift of spending will move from a more regulatory and cost-oriented approach in the prior times to now, certainly in the north American market with President Trump coming in, towards a more innovation-oriented approach,” he said.

Infosys sharpened its dollar-terms sales forecast for the full fiscal year. The company now projects sales will rise by between 8.4 percent and 8.8 percent for the year that ends March 31, 2017 versus October’s forecast of 8 percent to 9 percent. These ranges are on a constant-currency basis, which eliminates exchange rate fluctuations.

In dollar terms, which eliminates the effect of dollar-rupee exchange rate fluctuations, giving a clearer picture of actual growth in business, December-quarter sales rose 6 percent to $2,551 million from $2,407 million a year ago, and fell 1.4 percent from the previous quarter. That compares with the 1.3 percent sequential decrease that analysts Kuldeep Koul and Bhrugesh Parsawala at Mumbai brokerage ICICI Securities were expecting.

The top Indian IT companies are facing a downward spiral of billing rates decline in their main IT outsourcing business, where they have little to stand out from one another. The IT companies are now attempting to provide business technology consultancy and solutions based on digital technologies to help customer make more money, rather than just save costs.

The advent of automation has also prompted clients to ask that these orders be fulfilled with fewer human staff, hitting the IT companies’ revenues based on time spent and number of people employed to fulfil the orders.

During the December quarter, Infosys improved its utilisation, meaning the proportion of its workforce doing billable work to a record 89.3 percent, which helped expand operating margins a bit to 25.1 percent. The company crossed $10 billion revenue milestone on a last-12-months basis. On Thursday, TCS’s results beat some analysts’ estimates. Third-ranked Wipro reports its earnings on Jan. 25.