Infosys Lowers FY17 Guidance On Near-term Uncertainties Over Brexit

Infosys has lowered its FY17 revenue guidance to 10.5-12.0 per cent down from 11.5- 13.5 per cent in constant currency terms because of lack of near-term visibility of business due to uncertainties caused by Britain’s exit from the European Union, referred to as Brexit. The management however clarified that in the long-term, Infosys sees Brexit as an opportunity to build more revenue.

The country’s second largest IT exporter’s dollar revenue grew just 2.2 per cent (1.7 percent in constant currency after discounting impact of currency fluctuations) sequentially to $2.50 billion for the first quarter ended June 30, 2016 due to an unforeseen slowdown in discretionary spending.

“We had unanticipated headwinds in discretionary spending in consulting services and package implementations as well as slower project ramp-ups in large deals that we had won in earlier quarters, resulting in a lower than expected growth in Q1,” said Vishal Sikka, CEO & MD of Infosys.

It may be noted that the revenue growth of Infosys for the quarter under review was substantially lower than that of its larger peer Tata Consultancy Services (TCS) which reported a dollar revenue growth of 3.7 per cent (3.1 per cent in constant currency) sequentially to $4.36 billion.
The company’s net profit for the first quarter declined 4.1 per cent sequentially to $511 million given the seasonal impact of compensation increases and visa costs. The company’s operating margins for the first quarter stood at 24.1 per cent down from 25.5 per cent in the previous quarter. However, on a year-on-year basis, the net profit rose 7.4 per cent which reflects positively on the company.

Sikka said he is excited about the new service lines and the renewal of existing services which will be the key growth drivers in the next few quarters. In the first quarter, the company launched Infosys Mana, a knowledge-based artificial intelligence (AI) platform that helps businesses drive automation and innovation through machine learning.

“We continued to see strong momentum in large deal wins in which we are bringing the best of our Renew-New strategy to every deal; and we continued to see growth in our delivery services due to their renewal on the basis of Zero Distance, Design Thinking and automation,” Sikka said.
The consolidated attrition for the first quarter stood at 21 per cent as against 17.3 per cent in the previous quarter and the total headcount as of June 30, 2016 was 1.97 lakh employees.

The market reacted negatively to the muted guidance and lower-than-expected revenue growth, pulling the Infosys scrip down 8.81 per cent to close at Rs 1072.25 on the BSE.