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Infy grows faster than TCS in Q1

BENGALURU : Infosys said it would grow faster than anticipated in the current financial year as India’s second-largest software exporter registered accelerated growth in the first quarter, surpassing larger rival Tata Consultancy Services (TCS). The company increased its revenue guidance to 8.5-10 per cent for the year on the back of a strong deal pipeline while allaying concerns over the rising rate of attrition.

Infosys reported 12.4 per cent revenue growth compared with the yearago period, after accounting for fluctuations in foreign currency, during the first quarter of this fiscal, higher than the 10.6 per cent achieved by TCS. It bagged large deals of over $2.7 billion — it’s highest ever in a quarter — mostly from clients in the US and Europe. Investors rewarded the stock, with the company’s ADR on the NYSE jumping 6.16 per cent to $11.38 at11.52 pm India time on Friday.

“We see the growth being broadbased. Many of our sectors are growing at double digits. The guidance we’ve given is for all of our business,” said CEO Salil Parekh.

Infosys last reported double-digit growth for the full year in FY14.

Analysts Cheer Rise in Guidance

“We do see a good traction in the large deals pipeline. Today, we see demand for all of our digital work where we’ve shown growth at 41.9 per cent; that is giving us some level of confidence (to forecast higher growth),” Parekh told reporters at the post-earnings conference on Friday.

Analysts cheered the increase in revenue guidance but said they were concerned about the company’s inability to retain talent while seeing growth.

“Overall, earnings performance was healthy and increase in revenue guidance to 8.5-10 per cent has positively surprised us,” said Sanjeev Hota, AVP-research at Sharekhan, in a note. “On the flip side, elevated attrition numbers continue to remain a sour point for the company.”

“Guidance increase is led by strong deal wins. Growth in the $100 million client bucket is also a positive,” Apurva Prasad, IT analyst at brokerage HDFC Securities said. “Rising attrition still remains the critical problem.”

Infosys reported a higher attrition of 23.4 per cent, which includes people being let off in the quarter, compared with 20.4 per cent in the previous three months and 23 per cent during the year-ago period. It added 906 people (net) in the quarter.

“A big part of our attrition is at the lower level and in the current compensation review exercise we are trying to address it. We expect over a period of time the attrition will come down to a manageable level,” said chief operating officer UB Pravin Rao.

He added that higher people turnover has not affected Infosys’ ability to deliver projects.

In comparison, TCS, which expects to show double-digit growth for the second consecutive year, saw attrition of 11.5 per cent in the three months to June. It added 12,356 employees, the highest in the last five years.

Infosys has also begun a few job cuts. COO UB Pravin Rao said the company’s higher attrition was a result of seasonality as employees leave to pursue higher studies in the quarter, and higher involuntary attrition — industry parlance for employees who are let go.

When asked about job cuts for employees in job level seven and above, Parekh said the company does not comment on steps it takes for operational efficiency.

Analysts also questioned the company’s ability to hit margin band, citing the strengthening rupee and the need to give out-ofturn increments and promotion to contain attrition.

“There may be a lot of business situations, positive or negative, but we will deliver on our margin guidance (21-23 per cent),” said Parekh.

Infosys saw incremental revenue of $216 million in the quarter from digital services, a key driver for growth for the company. However, traditional services, which constitutes a bulk of its business, continues to see pressure. Software services grew less than 1 per cent for the company.

Infosys’ net profit grew 2.2 per cent to $546 million during the period on revenues of $3.13 billion, a growth of 10.6 per cent year on year.

In Rupee terms, the company saw 5.3 per cent growth in net profit to Rs 3,802 crore. Revenues grew 14 per cent to Rs 21,803 crore.

Source: Economic Times