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Infosys profit beats expectations on tax benefits

New CEO to spell out strategic plan by April after review

MUMBAI (NewsRise) -- Infosys, India's second-largest software exporter, reported a better-than-expected 38% jump in quarterly net profit aided by a tax gain in the U.S.

Consolidated net profit in the quarter ended in December stood at 51.29 billion rupees ($806 million), compared with 37.08 billion rupees a year earlier. Revenue grew 3% to 177.94 billion rupees. Analysts were expecting the company to report a net profit of 36.17 billion rupees.

The Mumbai- and New York-listed company also maintained its dollar revenue growth outlook for this fiscal year between 5.5% and 6.5%, barring currency fluctuations.

The latest quarter included a reversal of income tax provision worth 14.32 billion rupees on account of the completion of an advance pricing agreement with the U.S. Internal Revenue Service, the company said. The tax agreement will reduce Infosys's effective tax rate by 100 basis points going forward.

"We are progressing towards stability and are well positioned to serve our clients in the new areas of demand," new Chief Executive Salil Parekh said in a statement.

In August, Infosys saw a massive leadership change after the then Chief Executive Vishal Sikka abruptly quit amid simmering tensions with company co-founder N.R. Narayana Murthy. The churn saw Infosys bring back former CEO Nandan Nilekani as the new chairman. Parekh was subsequently named the new CEO in December.

In the past, Infosys's performance was crimped as it failed to develop leaders who could take over from the founders who led the company until 2014. The string exits by senior executives over the past few years developed into a major hurdle for business stability at the Bengaluru-based software company.

Parekh said he is undertaking a strategic review of the company's business and is set to lay out a firm plan by April.

On Friday, the company said Rajesh Murthy, president and a 26-year-long veteran, stepped down, effective Jan. 31, citing personal reasons.

After years of double-digit revenue growth, India's software industry is facing a slowdown as new internet technologies such as artificial intelligence and cloud computing make some of its people-heavy services obsolete.

However, Infosys' Chief Operating Officer U.B. Pravin Rao said increased adoption of digital solutions and new services has helped stabilize its price realization that has been under pressure for nearly two years.

Infosys' earnings came a day after larger rival Tata Consultancy Services reported a better-than-expected net profit on the back a surge in digital revenues.

Both Infosys and TCS saw muted revenue from retail and banking and financial services amid sustained weakness in the U.S. TCS said it is in a "wait-and-watch" mode and a full recovery is still a few quarters away in the financial services sector.

Infosys downplayed the concerns, saying the company expects discretionary spending to return to the sector this year, improving its prospects.

Ahead of the results, Infosys' shares ended 0.3% higher in Mumbai trading in line with a similar increase in benchmark S&P BSE Sensex. Shares of TCS lost 0.6%.

--Dhanya Ann Thoppil

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