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Infosys quarterly profit beats expectations amid large deals

India's second-biggest software exporter sticks to growth forecast

Infosys is rebuilding its business after a turbulent patch through 2017 with the dramatic departure of its then Chief Executive Vishal Sikka.   © Other Provider(90days)

MUMBAI (NewsRise) -- Infosys, India's second-largest software exporter, reported a better-than-expected 10% rise in second-quarter profit and maintained its growth forecast for this fiscal year amid rising investments in new digital technologies and large deal wins.

For the quarter ended in September, Infosys' profit stood at 41.10 billion rupees ($558 million), compared with 37.26 billion rupees a year earlier, the company said in a statement on Tuesday. Analysts were expecting Infosys to report a net profit of 40.51 billion rupees, according to data from Refinitiv. Revenue grew more than 17% to 206.09 billion rupees.

Chief Executive Salil Parekh said growth in the quarter was broad-based across all business segments and geographies.

"Large deal wins at over $2 billion during the quarter also give us better growth visibility for the near-term," he said.

The New York- and Mumbai-listed company kept its forecast for revenue, barring currency fluctuations, to grow at 6% to 8% in the year that began in April. Last year, Infosys reported a 5.8% rise in revenue to $10.9 billion. The company also maintained its operating margins outlook of 22% to 24% for this year.

The demand outlook "remains strong," Parekh told reporters at a news conference in Bengaluru, where the company is based. "We see good traction in financial services and in multiple sectors" that will drive growth going ahead, he added.

Infosys is rebuilding its business after a turbulent patch through 2017 with the dramatic departure of its then Chief Executive Vishal Sikka following a prolonged public spat with the company's founders over alleged corporate governance lapses.

The leadership turmoil spilled into this year, with four key executives stepping down since the beginning of the year and pushing the company's growth into a slow track. In August, Infosys' financial chief M.D. Ranganath, a company veteran, resigned. Ranganath will remain the CFO of Infosys until Nov. 16.

Its attrition at the end of September stood at 22.2%, one of the highest in the industry. The company has rolled out more promotions and other compensation and benefits-related intervention measures to address the problem, Chief Operating Officer U.B. Pravin Rao said. The employee retention measures weighed on Infosys' margins that stood at 23.7%, compared with analysts' expectation of more than 24%.

Infosys' woes have been aggravated with rising competition amid an industry-wide transition to new internet-based technologies such as artificial intelligence and cloud computing that ate into its stock software services business.

Infosys' digital services revenue grew 13% in the quarter, accounting for more than 31% of the company's overall revenue.

Parekh, who was appointed the CEO of Infosys in December, had earlier this year spelt out a new strategy for the company, envisaging doubling down on the digital business and re-skilling employees.

Larger rival Tata Consultancy Services last week reported a strong second-quarter profit and maintained its confidence in reporting double-digit revenue growth this fiscal year on the back of surging digital orders. The Tata group flagship's digital services revenue expanded 60% in the quarter.

To be sure, the outlook of top two Indian outsourcing companies is in contrast to larger rival Accenture, which last month gave a weaker-than-expected growth forecast citing the macroeconomic challenges. Information technology industry is heading toward a challenging economic climate caused by Britain's imminent exit from the European Union and a searing global trade war.

Infosys's stock lost 0.4% in Mumbai trading ahead of the earnings, while the benchmark S&P BSE Sensex gained 0.9%.

--Dhanya Ann Thoppil

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