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Infosys forecasts 14-16% growth in FY22, beats estimates

Infosys said it will grow at an even faster pace in the year ahead and forecast revenue expansion of between 14-16 %, beating analyst estimates, as India’s second largest software exporter snagged deals worth over $ 2.6 billion in the first quarter of financial year 2022.

The Bengaluru-headquartered company notched a decadal high with its fastest growth in a three-month period with revenue growing by 17.9% to Rs 27896 crore on the back of large digital transformation deals with clients such as ArcelorMittal stepping up investments in areas like cloud, cyber security and internet of things.

Infosys’ first quarter profits grew by 22.7% to Rs 5195 crore.

“Many companies which were not in the digital or online space are now shifting at rapid speed. Native digital companies are also growing very fast. So, from all of those perspectives, today the demand looks very good,” said Salil Parekh, chief executive officer of Infosys.

The IT services major grew 4.8% over the previous quarter. Its operating margins stood at 23.7%, which was up 1% over the year above period but down 0.8% compared to the previous quarter.

Infosys market beating performance was noted by investors with the company’s American Depository Receipts (ADR) on the New York Stock Exchange rising by 1.38% at $ 21.33 as at 19.35 hours IST.

FASTER THAN RIVALS

Analysts are of the view that while Infosys’s healthy revenue growth has beaten their expectations, the company’s lower margins– due to higher subcontractor expenses—is below their estimates.

However, the software services major is pipped to outpace rivals based on its strong deal wins in a market buoyed by higher investment in digital transformation.

“Infosys has seen healthy revenue growth and a strong deal pipeline. The company has consistently outperformed TCS in revenue terms,” Devang Bhatt, IT analyst with brokerage ICICI Securities wrote in a note to investors.

Last week, Tata Consultancy Services reported a 28.5% increase in first quarter profits to Rs 9008 crore while revenue rose by 18.5% to Rs 45,411 crore fuelled by large deal wins from clients such as Cummins and Carnival Corp. The country’s largest software exporter posted muted growth as localised lockdowns during the second wave of Covid-19, saw its revenue dip by nearly Rs 350 crore. The IT services giant grew 4.1% as against the previous quarter.

Sanjeev Hota, Head of Research at brokerage Sharekhan by BNP Paribas expects Infosys to be ahead of its peers in the current fiscal.

“Given strong demand across the verticals, strong deal wins, healthy deal pipeline and normalization of economic activities, the company is well positioned to report industry-leading revenue growth among large peers in fiscal 2022,” he wrote in a note.

UPTICK IN GLOBAL TECH SPENDING

Indian IT firms are witnessing an unprecedented surge in orders helped by their large local operations where they can hire engineers in thousands as global corporations increase technology spending.

ET reported on July 12 that India’s $150 billion IT services sector is expected to witness a “five-year mega growth” cycle due to the speed at which American enterprises are embracing digital transformation, following US President Joe Biden’s executive order last week to increase competition in the US economy.

“As those companies become more competitive, we will certainly benefit,” said Parekh, without specifics. He said the biggest impact will be among banks where they need to implement changes due to the executive order.

IT PORTAL GLITCHES

Responding to queries about the glitches in India’s high-profile tax filing portal, Infosys said solving the issues on the IT portal is its single largest priority, and that it was working with the Income Tax department.

“That is the single largest priority for us today,” said U B Pravin Rao, chief operating officer at Infosys.

In 2019, Infosys had won a Rs 4,242 crore contract to develop the new income tax filing portal. However, users have complained of several problems since it was launched on June 7, 2021. This prompted Finance Minister Nirmala Sitharaman to step in and ask the IT major to resolve the issues immediately.

Rao said the company had “still have some ways to go to address some of the intermittent issues” and was working to resolve the issue “as expediently as possible”.

“Many of the issues raised around performance and stability have been addressed with the reset, today, on an average we have 8-10 lakh people signing on to the portal,” he said.

HIRING BOOM

Infosys said it has set a target to hire 35,000 freshers globally during the year, of which, 10,000 people were hired in the first quarter. The company saw attrition increase to 13.9% from 10.9% in the quarter to March, with chief operating officer Pravin Rao cautioning that “as the demand for digital talent explodes, rising attrition in the industry poses a near-term challenge.” Infosys added a net of 8634 people in the first quarter to take its total employee base to 267953.

Industry leader TCS plans to hire over 40,000 freshers in India.

Infosys stock closed 2.07% up Rs 1576.9 on the Bombay Stock Exchange on Wednesday, when the benchmark Sensex in the green at 0.25% up to close at 52904.05. The results were announced after market hours.

Wipro will announce results on Thursday followed by HCL Technologies on July 19.

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