Infosys’s net profit for the three months ended December 31 rose 38.3% to ₹5,129 crore year-on-year, on revenue of ₹17,794 crore, helped by a one-off tax benefit. The firm maintained its full-year revenue guidance.
Increased adoption of the company’s digital and new services offerings by clients helped stabilise price realisation. Digital services accounted for 25% of the company’s revenue, while income from new services, a subset of digital, such as Nia and Edge, rose to 11.6% from 6.8% sequentially.
Infosys’s profit rode on a tax agreement with the U.S. Internal Revenue Service. As per the pact, Infosys reversed tax provisions of about $225 million made in previous periods. This had a positive impact on the consolidated basic earnings per share in the third quarter by about $0.10.
Salil Parekh, the new CEO and managing director of Infosys, took charge on January 2, after a damaging spat between the company’s founders and the board led to former CEO Vishal Sikka’s resignation and a management restructuring.
“It is a privilege for me to be appointed as the CEO & MD of Infosys, helping our clients navigate the digital future and employees build new skills and capabilities. Our Q3 performance is strong….24.3% operating margin with $593 million of free cash flow.” Mr. Parekh, 53, an ex-Capgemini veteran, said.
“We are progressing towards stability and are well positioned to serve our clients in the new areas of demand,” he said. “As part of Strategy Refresh have four pillars. We are focusing on market opportunities, client relationships, people, and service portfolio. I always have admiration and respect for Infosys. It has a strong foundation for business.”
In October, the company had lowered its revenue guidance for the full year ending March 31, with an expected growth of between 5.5% and 6.5% in terms of constant currency from an earlier estimate of 6.5%-8.5%.
It retained the same outlook in the third quarter. “We were able to grow client relationships across revenue categories,” said Pravin Rao, chief operating officer.
“During the quarter, we provided compensation increases and higher variable payouts to our employees. Our investments in employees continue to deliver results as reflected in lower attrition.”
M.D. Ranganath, CFO said operating margins were stable due to broad-based improvement in operational efficiency parameters.
“Our cash generation continued to be robust during the quarter,” he said. “We successfully executed the share buyback of ₹13,000 crore in line with our capital allocation policy.
Mr. Sikka, who quit the company in August last year, had set a goal of $20 billion in revenue by 2020, which has since been abandoned. After his departure, R. Seshasayee, chairman of the board, stepped down following allegations leveled against the board on transparency issues and irregularities in a $200 million acquisition of an Israeli firm by former co-founders led by N.R. Narayana Murthy, 71.
The board has denied any wrongdoing and has refused to make an internal probe report on the irregularities public. The probe had also reviewed a severance pay package to its former CFO, who was involved in the acquisition.
Nandan Nilekani, a co-founder of Infosys, returned to the board after an 8-year hiatus to become the non-executive chairman.
Pravin Rao, who was the interim CEO and managing director, has stepped down to assume this earlier role of COO and whole-time director up to August 17, 2022. Rajesh Murthy has resigned from his post as the president and Head Europe, consulting, energy and utilities, citing personal reasons, Mr. Nilekani said
“Previous quarter was fairly tumultuous,” Mr. Nilekani said. “Despite all the distractions, the leadership team pulled themselves through.”
Commenting on Infosys’s profit rise, Sanjoy Sen, doctoral research scholar, Aston Business School, U.K., said: “The timing of the tax reversal has been immensely fortuitous for Infosys and made a significant difference between what would have otherwise been viewed as a mildly positive performance, as against a reasonably good performance with the ability to swing market sentiment in its favour.”
“We believe the results are broadly inline, and would now look forward to the new CEO commentary on strategic roadmap going forward. We maintain our reduce rating on the stock,” Emkay Global Financial Services said in a note to clients.