Skava revaluation hits Infy profits; down 29.6% in Q3

Bengaluru-based, IT giant Infosys, has clocked a net profit of Rs 3,610 crore for the quarter ended December 31, 2018, down whopping 29.6%, compared with Rs 5,129 crore for the corresponding quarter last year.

On a sequential basis, the company’s bottomline declined by 12% from Rs 4,110 crore in the corresponding quarter last year. The hit on the profit came from the revaluation of Panaya and Skava, which the company has put on sale but is unable to sell.

The company has depreciated the value of Skava by a whopping Rs 451 crore. The company has also given up on the hopes of selling both entities by the March-end deadline.

The company also saw the impact of Advanced Pricing Agreement, signed in December 2017 quarter, getting negated. Hence the company saw massive jump in its tax expenses, that touched Rs 1,522 crore, as against Rs 152 crore in the corresponding quarter last year.

"During the quarter and nine months ended December 31, 2017, on account of the conclusion of an Advance Pricing Agreement (“APA”) with the U.S. Internal Revenue Service (“IRS”), the Company has, reversed income tax expense provision of Rs 1,432 crore which pertains to previous periods which are no longer required," the company said.

The gross profit of the company increased to Rs 7,384 crore, as against Rs 7,328 crore in the corresponding quarter last year. While the revenues of the company jumped by 20.3% to Rs 21,400 crore, from Rs 17,794 crore.

The operating margin of the company clocked 22.6% during the quarter, which is the lowest in past 10 quarters. The company attributed 110 basis points decline in its margins to Skava revaluation on Skava revaluation and the new acquisition.

On a sequential basis, however, the company revenues went up by only 4% amid a strengthening rupee. The company’s stocks closed 0.58% up on BSE on Friday, at Rs 683.5 per scrip. The digital business contributed 31.5% of the company’s revenues.

During the quarter, the company clocked $1.5 billion new deal wins.

The company has also been able to tame its industry-high attrition level by 2 percentage points to 17.8%. The company, during the quarter, hired 18,773 new workers, while 11,011 people left the IT major. The company has however seen a decline in its revenue per employee to $54,300 from $54,700 in the previous, and according to the company chief operating officer UB Pravin Rao, it may impact the company’s hiring plans going forward.

On the geographical front, all the major geographies for the company have seen growth during the year. While revenues from North America grew by 2.4% sequentially, the revenues from Europe grew 2.9% during the quarter. North America (60.4%) has been the biggest contributor to the company’s revenues in the quarter, followed by Europe (24.2%), and India (2.6%).

Based on the client industry vertical, Banking and Financial Services, Insurance (BFSI) segment grew by 3% during the quarter. Manufacturing and the energy vertical were best performing verticals for the company, with the increase of 6.9% and 7.2% respectively.

“With increased client relevance, we saw double-digit (10.1%) year-on-year growth in Q3 on a constant currency basis,” Salil Parekh, CEO and MD, Infosys said.

The company has also acquired 101 new clients in during the quarter, taking its total client base to 1,251, as against 1,222 in the previous quarter.

“We also had another strong quarter in our digital business with 33.1% growth and large deals at $1.57 billion which gives us confidence entering 2019,” Parekh added.

On the estimates front, the company set its revenue guidance at 8.5%-9.0% from 6%-8% in constant currency. However, operating margin guidance retained at 22%-24%.