Infosys posts 15% growth in revenue to $2.1 billion in the July-September quarter

IT outsourcing giant Infosys posted 15 percent growth in revenue to $2.1 billion in the July-September quarter.

The Indian outsourcer benefitted from a weak rupee.

However, the software company posted 11.1 percent fall in quarterly profit year to $383 million. This is despite the presence of NR Narayana Murthy at the helm of Infosys.

The 11 percent dip in profit was mainly due to its decision to keep aside $35 million for a visa-abuse investigation in the United States.

The company upgraded its revenue forecast for the full financial year. The Bangalore-based Infosys raised the low end of its revenue growth forecast to 9 to 10 percent for the fiscal year ending March 2014, up from 6 to 10 percent.

Infosys said profit for the July-September quarter dropped 11.1 percent from the previous year to $383 million.

“Infosys is engaged in discussions with the U.S. Attorney’s office and other government departments regarding a civil resolution of the government’s investigation into the company’s compliance with temporary visas for tech workers known as B-1 visas, Infosys said.

Labor advocates say the temporary visas for technology workers in the U.S., known as B-1 visas, are used by Indian outsourcers to bring in cheap software experts in to work in the U.S. instead of hiring American workers. Outsourcers argue that they need their own experts to install software developed in India.

The company also added 68 new clients in the quarter, including five worth more than $50 million each that are expected to increase revenue in the long-term.

Infosys refocus on big-ticket contracts since the return of its founder has begun to pay off as India’s No. 2 software services exporter crossed $2 billion in quarterly sales for the first time and pushed up its revenue outlook

Under Executive Chairman Murthy, Infosys is increasing investment in sales and doing a better job at winning large outsourcing contracts to which it is devoting more senior management attention.

IT industry response to Infosys results

“There’s still a lot of work to be done, but they’re turning around. I think they’re seeing deal wins, client traction and revenue momentum. I’m sure Murthy is spending a lot of energy in sort of assuring clients that Infosys means business,” said , Equirus Securities Chief Executive Bhavin Shah.

Murthy has said Infosys sacrificed growth in favour of higher-margin proprietary software and consulting. Instead, he is refocusing on large, plain-vanilla IT outsourcing contracts that have long been the industry staple.

Infosys pointed to Australia, its third-biggest market, as evidence of recent success, winning all six of the deals it competed for above $75 million in value over the last two quarters.
infosys-boothGlobally, won five large contracts worth a combined $450 million in the September quarter.

Forrester Research’s Vice President and Country Manager for India, Manish Bahl, said: “While in the short-term the strategy seems fine but it poses threat to its 3.0 strategy (earning more revenue from big data, analytics and cloud) because competitive advantage is hard to sustain in pure IT services. Infosys is running against time and the company must accelerate its 3.0 strategy to acquire/ develop and deploy IP in the form of assets, platforms, and highly skilled people to deliver high value and disruptive innovation to clients.

“We have started to witness increasing focus from end-user organizations to connect digital investments directly to business outcomes which is becoming a critical factor in determining the success of an IT service provider in organizations,” said Moreover, digital capabilities — mobile, social, cloud, and data and analytics —disrupts business models and value streams.

Infosys, results have been above estimates. While the volume growth was in line, average realization increase has come as a positive surprise. On the other hand, margins have come in slightly below estimates.

“We believe that, the company should be able to do better than the guidance given for FY14, which, we feel, is conservative. The company has reported consistent revenue growth performance over the past couple of quarters and it has levers to improve margins further from current levels. To that extent, we expect the valuations to improve from the current levels,” said Dipen Shah, head of Private Client Group Research, Kotak Securities.

Meanwhile, Infosys has made further changes to its top management, reassigning roles held by senior executives who recently left the company to join smaller rivals.

Prasad Thirkutam, a senior vice president and head of the energy, utilities, and communications vertical has been given the additional responsibility of heading Americas geography. Mohit Joshi, vice president and head of financial services vertical in Europe has been made the head of banking, financial services and insurance unit for the Americas.

Both Thirtukam and Joshi, take the additional responsibility while continuing on with their exiting responsibilities. Thirkutam replaces Ashok Vemuri, who left Infosys to join iGate as CEO, while Joshi replaces Sudhir Chaturvedi left Infosys for NIIT Technologies where he is now the chief operating officer.

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