Infosys earnings for Q2 FY 2017 (ending September 2016) were just announced…

Highlights are as follows:

  1. Revenues at 2,587 million; YoY growth was 8.9% in constant currency and 8.2% in reported terms; slightly better than expected.
  2. 78 new clients added in Q2FY17; client count: 1,136 current clients
  3. Volume growth was 4%; blended pricing increased by 0.7% in constant currency
  4. Net profit at 539 million; YoY growth of 3.8%
  5. Attrition down 1% to 20%
  6. H1 year on year revenue growth at 9.5% in reported terms; 10.5% in constant currency terms
  7. Operating margins expanded 80 bps sequentially to 24.9%
  8. Volume growth at 4.0% during the quarter Q2
  9. Utilization excluding trainees up by 200 bps sequentially to 82.5%
  10. FY 17 revenue guidance revised to 8.0% – 9.0% in constant currency
  11. 1.2 Bn $ Large Deals win; 6 Large deals (3 in the BFSI space)
  12. RBS ramp-down from Q3 (approx. 3000 in India)
  13. US and Retail vertical volatility/softness (Virtual Reality solutions)
  14. Strengthening of dollar creates challenges
  15. 24-25% Operating margin forecast for 2016-17
  16. 64 days DSO (from 66 days)

Earnings Link –

Wow, however, annual revenue growth revised to 8-9% in constant currency (vs 10.5-12% – which itself was earlier revised downward)

Stock taking a tumble….

Management Commentary:

Dr. Vishal Sikka, CEO: “We focused on strong execution in Q2 with our core IT services business showing good progress on the strength of our innovation and operational initiatives. While we continue to navigate an uncertain external environment, we remain focused on executing our strategy and increasing momentum of our software plus services model. Considering our performance in the first half of the year and the near-term uncertain business outlook, we are revising our revenue guidance.”

“Longer-term, I believe it’s increasingly clear that our industry’s future lies in evolving from a cost-based, people-only model, to one in which people are amplified by software and AI, and are freed to innovate in areas that are strategic to our clients’ future. And in this all-important transformation, I am glad to see us make continued progress.”

U B Pravin Rao, COO: “We had well-rounded growth during the quarter in our market segments. Our delivery and support teams executed well on their plans for resource management during the quarter, leading to an uptick in utilization.”

M.D. Ranganath, CFO: “I am also pleased that the changes we made to employee engagement, policies and rewarding high performers continue to help retain our high quality workforce.” “Our margins expanded during the quarter on the back of further improvement in operational efficiency.” “Operating cash flows for the quarter were healthy and we effectively navigated a volatile currency environment through prudent hedging.”

Things to watch out for (prior to results) are:

  • Revenue forecast expected to be revised downward – by how much…
  • Steps to address Senior management exits
  • Large deal wins and demand from top customers ; ability to meet Sikka’s $20 billion target
  • Performance of Infosys Consulting, Infosys BPO and EdgeVerve

Issues really are industry wide:

  1. Going from people based services to platform based services
  2. Adapting to emerging trends of Cloud, SaaS, AI, Analytics, IoT, “Bot”-based Automation etc.
  3. Moving away from Factory-based model to Solution-based model
  4. Moving to Productized services

For the quarter ended September 30, TCS announced Q2 results yesterday.  Revenue rose 1% sequentially in constant currency to $4.37 billion. Net profit rose 4.7% to $984 million. During the quarter, its constant currency revenue was up sequentially by 1 per cent.

TCS revenue was below expectations.