Takeaways: Infosys shrugs off market concerns with strong sales guidance

MUMBAI: Tata Consultancy Services’ underwhelming earnings on Friday had shook the faith of several investors in the IT growth story, however, ’ numbers today should assuage those concerns going ahead.

The Bengaluru-based company reported better-than-expected revenues and net profit for the quarter ended September as its juggernaut rolls on. The company’s consolidated net profit rose 4.3 per cent sequentially on the back of 6.1 per cent growth in topline.

“Our stellar performance and robust growth outlook continue to demonstrate our strategic focus and the strength of our digital offerings,” said Salil Parekh, chief executive officer at Infosys in a press statement.

That said, here are the major takeaways from the IT bellwether’s September quarter earnings:

Guidance surpasses all expectations

Infosys raised its sales growth guidance for 2021-22 to 16.5-17.5 per cent from 14-16 per cent earlier, which was higher than Street’s expectations of 15-17 per cent.

Not only did the company raise the revenue guidance but also narrowed the guidance band, which reflects the confidence that Parekh has in the company’s ability to deliver on the execution front. Parekh said that past deal wins and future deal pipeline lent confidence to raise the guidance.

Margin show lends strength

Not only the sales growth guidance for FY22, but Infosys’ margin performance for the quarter ended September should also boost investors’ sentiment. The company saw a 10 basis points dip in consolidated operating margin to 23.6 per cent on a quarter-on-quarter basis, which was better than what analysts expected.

With the CFO Nilanjan Roy suggesting that there will be aggressive cost focus despite investments in talents and wage hikes, Infosys is likely to comfortably meet its margin guidance of 22-24 per cent come March 2022.

Digital services keep chugging along

The digital services revenues continued to gather steam as they grew more than 42 per cent on-year, which also was better than some analysts estimate. Digital services now contributed more than 56 per cent to revenues as against 50 per cent a few quarters ago.

Parekh said that the company continues to see “tremendous” growth when it comes to digital services because of the benefits of its cloud platform COBALT. Concerns of growth plateauing for the segment appeared to be premature.

Attrition to remain a sore point

Infosys much like TCS before it said that high attrition rates are likely to continue for the next few quarters till fresh engineering graduates join the workforce. Infosys will ramp up campus hiring to 45,000 this year in a reflection of the ongoing talent crunch.

The company’s attrition rate spiked to over 20 per cent from around 13 per cent in the previous quarter despite undertaking wage hikes and offering one of the highest number of promotions in its recent history.

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