Infosys rises on strong guidance

After the muted Q1FY20 earnings of TCS, the expectations were tempered down for Infosys and it turned in a surprise, more so in terms of its guidance.

Its earnings were not great – revenue was up 1% (QoQ) at Rs.21,803 crore but net profit slipped 7% at Rs.3802 crore. But this bottomline, despite a fall was much higher than most analysts expectations.

Even its EBIT came is 3% lower at Rs.4471 crore and margins contracted from 21.4% to 20.4%.

Yet, it remains very optimistic for FY20. It has maintained its EBIT margin guidance in the range of 21% to 23% and increased revenue forecast range in constant currency from earlier given guidance of 7.5% to 9.5% to 8.5% to 10%. The company stated that the upgrade in revenue growth guidance is driven more by improving traction in large deal pipeline, rather than the contribution from acquisitions.

What also worked in the its favour is its decision to allocate capital to the tune of 85% of free cash flows over next five years v/s the earlier allocation objective of 75%.

For Q1FY20, the company saw record deal bookings of $2.7 billion v/s average of $1.5 billion over Q4 and Q3.

Worrying aspect for all analysts – the high attrition rate. The attrition (annualised consolidated) was at 23.4% v/s 20.4% (QoQ). It plans to correct this and plans to hire 18,000 people from various campuses. Currently it employs 2.29 lakh people.

The market is very happy with this performance with the stock opening 5% higher at Rs.762 and going up to an intraday high at Rs.770, which is not too far from its 52-week low of Rs.773.65.