Infosys posts 3.7 per cent rise in Q1 net profit,8217;cautiously optimistic8217; about outlook

Related: Infosys gears up for major rejig

Related: Infosys,India IT sector outlook to get renewed US demand boost

India8217;s second largest IT services company posted a year-on-year growth of 17.2 in consolidated revenue for the quarter at Rs 11267 crore. On a quarter-on-quarter basis,revenue grew 7.8.

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Despite facing an uncertain macro environment,changing regulatory regime and a volatile currency environment,we have done well in Q1 and are cautiously optimistic about rest of the year, said S D Shibulal,CEO and Managing Director.

We maintained our margins and continued making investments in the business, said Rajiv Bansal,Chief Financial Officer. We have announced compensation increases for FY 14 effective July which will affect our margins in the future quarters.

It was the first earnings report since Infosys brought back co-founder N R Narayana Murthy in June as executive chairman. The company8217;s last results disappointed with lower profits and a subdued growth forecast,so Friday8217;s more positive outlook was welcomed by investors.

Related: Infosys expects 300 bps hit to margins on wage increases

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Following are quick comments from analysts:

JAGANNADHAM THUNUGUNTLA,EQUITY HEAD,SMC GLOBAL SECURITIES,NEW DELHI

8220;A number of factors seems to have worked in their favour including a weaker rupee,Murthy coming back at the helm and the U.S. economy looking up a bit. The stock was trading at a sharp discount to its peers on P/E multiples and this is the push the stock needed.8221;

PHANI SEKHAR,FUND MANAGER,ANGEL BROKING,MUMBAI

8220;Generally you can conclude that the worst is over for them but it remains to be seen how quickly they can recover from here. We need to watch whether the management sees any air pockets going forward.

8220;You can ascribe it to Murthy magic. If they have deviated from their Infosys 3.0 strategy to focus on more mundane work at a lower price to bump up volume,that would be a good strategy and you can expect that kind of pragmatism from Murthy.8221;

TARUN SISODIA,DIRECTOR,CHANAKYA NITI PVT LTD,MUMBAI

8220;This is far better than what some people in the market were expecting. The earnings have been pretty volatile in the last few quarters and this time around the expectations were muted given what has happened in the company recently.

8220;I think the stock should now go for re-rating.8221;

SANDIP SABHARWAL,CEO,PORTFOLIO MANAGEMENT SERVICES,PRABHUDAS LILLADHER,MUMBAI

8220;It8217;s a good start for earnings season. Infosys has beaten our lowered expectations. Guidance has been maintained and I think rupee guidance would be beaten as well.

8220;One shouldn8217;t be too euphoric though for the stock as there are a lot of management and structural changes that need to happen.8221;

Infosys Q1 net profit up 3.7 pct,meets estimates

Reuters Infosys Ltd hopes a return to aggressively chasing deals,even those with low margins,will help it regain lost market share but cut-throat competition and a possible change in US visa rules may derail its plans.

Narayana Murthy headed Infosys defied some analysts8217; expectations and retained its revenue growth forecast for the full year,a sign that India8217;s second largest software services exporter was confident it could regain lost market share.

A focus on proprietary software at the expense of IT outsourcing contracts prompted India8217;s second largest IT exporter to post two years of disappointing results and left it struggling to compete with local rivals Tata Consultancy Services Ltd and HCL Technologies Ltd.

Most analysts had expected Infosys to maintain its forecast for 6-10 per cent revenue growth for the current 2013/14 financial year,but Morgan Stanley raised doubts last week,saying the company would cut estimates to 4-6 per cent.

Investors cheered the forecast,sending Infosys shares nearly 15 per cent higher to their loftiest in almost three months.

8220;Generally you can conclude that the worst is over for them but it remains to be seen how quickly they can recover from here,8221; said Phani Sekhar,fund manager at Mumbai-based Angel Broking,which holds shares in Infosys.

8220;We need to watch whether the management sees any air pockets going forward.8221;

Infosys8217;s revenue growth forecast still lags the 12-14 per cent growth outlook for the sector made by local IT industry lobby National Association of Software and Services Companies,highlighting the challenges facing the company8217;s management.

The company also has to regain investors8217; trust its ability to deliver strong earnings after almost two years of disappointing results.

Last quarter,Infosys forecast full-year sales growth that missed analyst expectations by a margin of up to 50 per cent,sending its shares down as much as about 20 per cent.

8220;Infosys has beaten our lowered expectations and its guidance has been maintained,8221; said Sandip Sabharwal,CEO of Portfolio Management Services at Mumbai-based brokerage Prabhudas Lilladher which holds Infosys stock.

8220;One shouldn8217;t be too euphoric though for the stock as there are a lot of management and structural changes that need to happen.8221;

An attempt to earn a bigger share of revenue from proprietary software,at the expense of IT outsourcing contracts,saw Infosys losing out to rival Tata Consultancy Services.

Infosys brought back founder Narayana Murthy as executive chairman on June 1 to revive the company,and his efforts may get a boost from forecasts that 2014 will see the strongest demand for technology from US government institutions and businesses since the 2008 global financial crisis.

On Friday,Infosys reported a 3.7 per cent year-on-year increase in its consolidated net profit for the first quarter,in line with analysts8217; expectations.

8220;Despite facing an uncertain macro environment,changing regulatory regime and a volatile currency environment,we have done well in Q1 and are cautiously optimistic about rest of the year,8221; CEO S D Shibulal said in a statement.

Infosys also said its margins may be affected in future quarters due to previously announced compensation increases. In June,the company had said it would raise salaries for all eligible staff.

8220;We are definitely more aggressive in going after growth,8221; Shibulal said. 8220;We are definitely making progress in our efforts to win large IT outsourcing deals.8221;

8220;The majority of the deals are re-bids and they are price sensitive. The trick is,in the short term they are margin dilutive,but we have to ensure that they are margin neutral over the life of the contract,8221; he added.

Infosys said it had added 66 new clients in the fiscal first quarter that ended June 30. A re-bid is a contract that is up for renewal.

Investors cheered Infosys8217; results and strategy turnaround,sending its shares to their loftiest in almost three months.

But the revenue growth forecast of 6-10 percent still lags the 12-14 percent outlook for the sector made by local IT industry lobby National Association of Software and Services Companies.

And looming large over all Indian IT companies is the possibility that the United States,the sector8217;s biggest market,will implement as early as next year new visa rules that will make it more costly and difficult to send workers there.

Infosys derives 62 percent of its earnings from North America and is the most exposed of its rivals to the region.

Infosys,and its rivals,may get a boost from forecasts that 2014 will see the strongest demand for technology from U.S. government institutions and businesses since the 2008 global financial crisis.

Regaining investors8217; trust remains a challenge. Infosys stock lost 16 percent of its value last year,but the company has pinned its hopes for a revival on founder Narayana Murthy whom it brought back as executive chairman in June.

At 0815 GMT,shares of the company were up 9.4 percent at 2,764 rupees after touching 2,905.60 rupees,their highest since April 11.