Infosys Q2 beats estimates, net profit up 7.3% q-o-q

Infosys, India’s second largest information technology (IT) services company, today cheered investors by posting a strong growth for July-September 2015 (Q2FY15), beating estimates on most fronts, as well as announcing a bonus share issue.

Additionally, in line with expectations, the company left its revenue growth guidance for FY15 unchanged at 7-9%.

The Bangalore-based company’s consolidated net profit for Q2FY15 grew 28.6% year-on-year to Rs 3,096 crore, while its consolidated revenue rose 2.9% to Rs 13,342 crore. On a quarter-on-quarter basis, the net profit rose a whopping 7.3% and revenue increased 4.5%.

In dollar terms, net profit increased 6% sequentially, and revenue grew 3.1%. Most analysts had expected the company’s dollar-revenues to grow around 3%.

Earnings during the quarter were mainly aided by an uptick in demand environment, coupled with the company’s cost rationalisation measures. The company along with its subsidiaries added 49 clients during Q2 on a gross basis.

Reacting to the strong performance, Infosys’ shares were trading up 5.5% at Rs 3,845 at 9:45 am.

“Digital transformation is reshaping the business of every one of our clients. We see this as a great opportunity to help them renew the core of their business as well as to expand into new frontiers and are seeing early positive results”, Infosys’ newly appointed Chief Executive Officer and Managing Director Vishal Sikka said in a company statement. “Our strategy is to apply the same principles to our own business in order to capture this opportunity and accelerate our growth, within our culture of lifelong learning and purposeful work."

A big surprise also came on the margins front as the company posted 100 basis point sequential expansion in its operating profit margin for Q2FY15 at 26.1 basis points. Most analysts had expected a 30-50 basis point margin expansion.

“We have been able to improve our margins during the quarter and feel confident of sustaining these within a narrow band”, said Rajiv Bansal, chief financial officer. “This is giving us increased confidence to make the investments required to meet our growth aspirations.”

To investors’ surprise, Infosys announced a one-for-one bonus share issue. Several analysts term this move as “Sikka’s gift for the Street”.

“The Board approved and recommended the issuance in order to increase the liquidity of its shares and to expand the retail shareholder base,” Infosys said in a statement.

Employee attrition at the company rose further to a record high of 20.1%, from 19.5% a quarter ago.

Infosys also said it has pledged Rs 254 crore for FY15 towards corporate social responsibility (CSR) through its philanthropic arm, Infosys foundation. The foundation is engaged in several programs aimed at alleviating hunger, promoting education, improving health, assisting rural development, supporting arts and helping the destitute.