Bonus shares, profit rise boost Infosys

BANGALORE: Vishal Sikka has had an auspicious start at Infosys. His first quarterly results as CEO of the company came in better than expected, and combined with a 1:1 bonus issue and a good interim dividend, sent the share price up by 6.5% on the Bombay Stock Exchange on Friday, a day when the broader sensex fell.
The Infosys board has recommended a bonus issue of one equity share for every equity share held.It also declared an interim dividend of Rs 30 per share.
In a bonus issue, there is no addition of wealth for any shareholder, but since it makes the shares become affordable and accessible to retail investors, it could increase demand, which in turn could exert an upward pressure on the share price.
Infosys’ revenue in the quarter ended September was up 3.1% to $2.2 billion, compared to the preceding one, and was up 6.5% compared to the same period last year. That was mostly in line with analysts’ expectations, but is still below the 7-9% guidance that Infosys has provided for the full year, and means that growth rates in the next two quarters have to be higher to meet the guidance.
The firm’s net profit, however, was much higher than expected. It rose 6% to $511 million in the quarter, compared to the first quarter, and 33.4% compared to the year-ago period. The operating margin improved by 100 basis points to 26%. It had dropped precipitously in 2011-12 and 2012-2013 but has been mostly on an upward trajectory since then. It was 21.9% a year ago.
Sikka, who took over as the first non-founder CEO of Infosys on August 1, said he was overhauling existing services and creating new ones based on a host of new technologies that have emerged in areas including automation, artificial intelligence, cloud, mobility, analytics and sensors. “We will renew everything we do today to deliver business outcomes and value. Infosys has to amplify the abilities of clients, not just augment them,” he said.
Digital transformation, he said, was reshaping the business of every one of Infosys’ clients. “We see this as a great opportunity to help them renew the core of their business as well as to expand into new frontiers and are seeing early positive results,” he said.
Sikka has brought a number of his former colleagues at SAP well versed in such areas to implement his strategy. But he said it may take 2-3 years for the strategy to make visible a meaningful impact.
Infosys has been underperforming the industry for three years now. This year’s revenue guidance of 7-9% is lower than the 13-15% that IT industry body Nasscom expects the industry to grow by this fiscal. Peers TCS, Cognizant and HCL Technologies have been growing significantly faster.
Employee attrition still remains a big concern, touching an all-time high of 20.1% in the September quarter. Company COO U B Pravin Rao, however, said the most recent month-on-month figures showed a significant improvement, following the adoption of employee-friendly measures.
Sikka also has to contend with shareholders like TV Mohandas Pai and V Balakrishnan, who were once the company's Board members and CFOs. They have been calling for a buyback of shares, given Infosys’ $5.4 billion cash pile. “We hope the company puts more cash in the hands of shareholders,” Balakrishnan said on Friday.