Infosys Q3 net profit up 11.8% at Rs 5,809 cr

Infosys on Wednesday reported a near 12 per cent rise in its December quarter net profit to Rs 5,809 crore and raised its annual revenue forecast on the back of strong demand from businesses going digital amid the pandemic.

The Bengaluru-based company's consolidated net profit in the September-December 2020 quarter was Rs 5,197 crore.

Its revenue soared 23 per cent to Rs 31,867 crore.

The nation's second-largest IT services firm said it expects revenue growth of 19.5-20 per cent on a constant currency basis in the current fiscal, against a 16.5-17.5 per cent forecast in October.

"...our year-on-year growth was the fastest we have had in 11 years. The growth was broad-based across industries, service lines and geographies, driven by our differentiated digital and cloud capabilities," Infosys CEO and MD Salil Parekh told reporters.

The company has delivered margins (at 23.5 per cent) while increasing compensation and benefits for employees.

Infosys' digital business grew by 42.6 per cent and is now 58.5 per cent of the overall revenues.

The IT firm delivered strong December quarter performance with sequential growth of 7 per cent in a seasonally weak quarter (due to furloughs and lower working days in key markets of the US and Europe) and year-on-year growth of 21.5 per cent in constant currency.

“There's tremendous confidence in what we are seeing with our clients.

“We had large deals at $2.5 billion...Our pipeline itself is very strong...the guidance (of 19.5-20 per cent) is for this financial year, which ends in March but overall the demand environment looks really strong as we look out beyond March as well," Parekh said.

He noted that the demand outlook is good, the digital transformation was strong, and Infosys' work in cloud and digital remains very good.

Infosys chief financial officer Nilanjan Roy said despite the cost escalations, driven primarily by supply-side challenges, the company delivered another quarter of healthy margins with improved cost optimisation, continued operating leverage and a stable pricing environment.

“...we've taken up our graduate hiring program to 55,000 (for FY22) looking at this demand, and of course, we are very keenly looking at the attrition figure.

“One is to how do we bring this down, and we see stability sort of coming in this quarter...we continue to focus on all of these employee interventions.

“And the same time you don't want to let go of any demand and therefore a hiring program, as well as the lateral program, continues unabated,” he added.

He noted that Infosys has a three-pronged strategy to retain talent, including higher rewards and compensation, upskilling and reskilling opportunities, and talent retention programmes.

Infosys' headcount stood at 292,067 at the end of December 2021 quarter with voluntary attrition (last 12 months - IT Services) at 25.5 per cent as against 20.1 per cent in the September and 11 per cent in the year-ago period.

Indian IT services companies have been dealing with high attrition rates as demand for digital talent has outstripped supply, leading to what industry experts call a "war for talent".

Gartner senior director analyst DD Mishra said attrition at the moment is a primary concern for Indian IT Services providers.

"This has started impacting the customer experience as well as some customers are feeling the impact of the rising attrition rates.

“IT service companies will have to be more careful about their attrition rates," he added.

Infosys shares closed 1.16 per cent higher at Rs 1,877.60 apiece on BSE on Wednesday.

The results were declared after market hours.

Ashis Dash, research analyst at Sharekhan by BNP Paribas, said Infosys reported another quarter of excellent all-around growth across the financial parameters.

"Strong revenue growth was led by broad-based growth across verticals and higher discretionary spends by clients, while EBIT margin (though declined 10bps q-o-q) beat our estimates despite wage revision of seniors, rising attrition, lower utilisation and higher subcontractor expenses. It seems Infosys is getting some pricing benefits," Dash said.

The company is well-positioned to report industry-leading organic revenue growth among large peers given strong demand, healthy deal wins, robust deal pipeline and market share gains, he added.

Parekh said the company's acquisition approach remains very focused.

"We have a good pipeline of potential candidates.

“Our focus has been on what can we acquire which will give us a boost in the digital transformation area - these relate to, for example, cloud or cybersecurity or IoT or other areas, which are supporting digital, and we look at different companies.

“It's a combination of how will it fit culturally, how will we do the integration and what is the valuation, but this is an ongoing process," he added.

On the recommendation of the Nomination and Remuneration Committee, the board has approved the annual time-based stock incentives to Parekh in the form of Restricted Stock Units (RSUs), having a market value of Rs 3.25 crore as on the date of grant under the 2015 Stock Incentive Compensation Plan (2015 Plan).

The RSUs will vest in line with the employment agreement. The RSUs will be granted with effect from February 1, 2022, and the number of RSUs will be calculated based on the market price at the close of trading on February 1, 2022, a regulatory filing said.

The Board has also approved the annual time-based RSU having a market value of Rs 1.75 crore to a Key Management Personnel under the 2015 plan, in accordance with the terms of his employment agreement, apart from grant of performance-based stock incentives in the form of RSUs to certain eligible employees, covering company's equity shares having a market value of $5,31,000 (approximately Rs 4 crore) as on the date of the grant under the Infosys Expanded Stock Ownership Program-2019 (2019 Plan), the filing said.

Photograph: Vivek Prakash/Reuters