Infosys Q1 profit falls 6.8% quarter-on-quarter

India’s second-largest software services company Infosys ended the first quarter of the current fiscal year with a 5.3% rise in year-on-year profit, while quarter-on-quarter net profit fell 6.8%.

The Bengaluru-based IT major’s profit during the quarter stood at Rs 3,802 crore compared to Rs 3,612 crore in the corresponding period last year. During the preceding March quarter, profit was recorded at Rs 4,078 crore.

“We had a strong start to FY20 with constant currency growth accelerating to 12.4% on year-over-year basis and digital revenue growth of 41.9%. This was achieved through our consistent client focus and investments which have strengthened our client relationships,” said Salil Parekh, CEO and managing director, Infosys, adding that in constant currency terms, the revenue growth guidance range for FY20 was increased to 8.5-10% from 7.5-9.5%.

IT companies typically use the constant currency method to eliminate the effects of exchange rate fluctuations while calculating financial results.

“Our first quarter results and continued focus on operational efficiencies gives us the confidence on our revenue and margin guidance for the year,” said Nilanjan Roy, CFO, Infosys. “Continuing our objective of improving shareholder returns, we have revised our capital allocation policy upwards to distribute about 85% of free cash flows cumulatively over a five-year period.”

Revenue during the quarter under review stood at Rs  21,803 crore, up 14% year-on-year and 1.2% quarter-on-quarter. Revenue from digital business was at $1,119 million ($1.12 billion), up 42% year-on-year. Digital makes up about 36% of its total revenue.

“We had a good quarter as we continue to leverage our digital navigation framework to help our clients build and nurture their live enterprise,” said Pravin Rao, COO, Infosys.

“Large deal TCV [total contract value] was highest ever at $2.7 billion. Segment growth was robust with all large regions and most verticals growing at double digits yoy [year-on-year] in constant currency,” added Rao.

For larger rival TCS, digital contributes about 32.2% of the company’s total revenue. Over the past few years, Indian IT companies have ramped up their digital services offerings in areas such as artificial intelligence (AI), analytics, mobility, the Internet of Things (IoT) and cloud computing as clients push for more transformative services than just cost-savings outsourcing deals. Software services majors have focussed on building niche digital capabilities and reach to boost its revenue growth from the digital business, one of the biggest bets for the Indian IT outsourcing industry today.

Infosys maintained its FY20 operating margin guidance range of 21-23%. The attrition rate increased to 23.4% during the June quarter, up from 23% in the previous year.

Shares of Infosys closed at Rs 727.10 apiece, up 0.87% on the BSE on Friday, while the Sensex ended the day marginally down by 0.22%.