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Infosys profit rises on client wins, one-time tax benefit

Net income was Rs51.3b ($806 million) in the three months ended December

Gulf News


Infosys Ltd posted a 38 per cent surge in third-quarter profit on a tax benefit and investments in digital technologies as its new chief executive officer maintained forecasts for slowing sales growth.

Net income was Rs51.3 billion ($806 million) in the three months ended December, compared with the Rs36.1 billion average of estimates compiled by Bloomberg. The company booked a $225 million gain, part of a series of tax-provision reversals agreed upon with US tax authorities. Sales rose just 3 per cent in the quarter.

The earnings announcement is the first since Salil Parekh took over as chief executive officer last week after a boardroom tussle that ushered out Vishal Sikka. Asia’s second-largest software services company had been an investor favourite before a very public clash between its directors and several founders over corporate governance issues. Parekh’s pledged to keep steering Infosys away from a traditionally labour-intensive model.

“Infosys results are decent, actually positive as there is no negative,” said Sushant Kumar, fund manager at Mumbai-based Raay Global Investments Pvt. “After Sikka’s exit, market was expecting a status quo on results front and it came.”

Full-year revenue will rise 5.5 to 6.5 per cent in constant currency terms, while in US dollars growth is projected at 6.5 to 7.5 per cent, a prediction that was cut last year after the boardroom upheaval. Sales in fiscal 2017 rose 9.7 per cent.

Infosys shares traded 0.3 per cent higher on Friday in Mumbai before the earnings were released, extending its gain in the past year to 7.8 per cent.

Parekh, a former board member at Capgemini SE, has a master’s degree in computer science from Cornell University and has a reputation for being affable but aggressive. The 53-year-old CEO will need to draw on those attributes in navigating the relationship with Infosys’s powerful founder-cohort. Chief among them is former chairman Narayana Murthy, who last year attacked large pay hikes for senior executives as well as generous exit packages for departing executives.

Parekh plans to lay out strategic priorities after April.

“We are progressing towards stability and are well positioned to serve our clients in the new areas of demand,” Parekh said in the earnings statement.

India’s $154-billion IT services industry is investing heavily in cloud- and artificial intelligence-based services to jump-start growth, as clients in key segments such as banking and finance turn increasingly to automation.

“Infosys Q3 results suggest that the company is slowly and steadily heading toward stability,” says Praveen Bhadada, Gurgaon-based global head, digital, Zinnov Management Consulting Pvt. “In line with its major competitors, Infosys would need to carve out a comprehensive strategy to be part of the digital transformation spends of its clients.”

Infosys reported earnings a day after larger rival Tata Consultancy Services Ltd posted quarterly profit that matched expectations.