Europe looks good; won't clip pricing to drive rev: Infosys

IT bellwether Infosys  surprised the street with better-than-expected results for the third quarter. It raised full year guidance sending its shares soaring 12 percent in morning trade.

The Bangalore-based company reported a consolidated net profit of Rs 2,369 crore , unchanged quarter-on-quarter (down 0.1% from year ago), while revenue rose near 6 percent sequentially (12 percent YoY) to Rs 10,424 crore in Oct-Dec.

Pleased with third quarter results, Infosys management - SD Shibulal, CEO & MD, Rajiv Bansal, CFO, BG Srinivas, global head (Financial services and insurance), V Balakrishnan, Head (Infosys BPO, Finacle & India Business unit), Ashok Vemuri, global head (manufacturing and engineering services) and Basab Pradhan, head (global sales, marketing and alliances) spoke to CNBC-TV18 about the future prospects of the company.

Below is the edited transcript of the interview with CNBC-TV18

Q: It is the best quarter that you had in five or six quarters. The Street is happy. Would you call this as a turnaround quarter for Infosys?

Shibulal: We have done well in Q3. Our growth is 6.3 percent including Lodestone, 4.2 percent excluding Lodestone. Earnings per share (EPS) is USD 0.76, up from USD 0.75 last quarter. The growth has been all around. We have added a number of clients, one of the highest client additions in many quarters - 53 new clients. Each of the verticals have grown.

The offerings have also grown. We have eight large deal wins and bids amounting to USD 700 million. Consulting and system integration grew by 15 percent Q-o-Q. In the products and platform space, we have added USD 100 million of total contract value (TCV) and today that stands at USD 600 million. So, it has been all-round performance. Pricing has gone up 1.8 percent, which is a reflection of the portfolio shift.

I can clearly say that this is a result of the execution of the strategy over a period of time. For example, in the last quarter we had eight transformational wins, which led to revenues this quarter. In the middle of Q3 we had seen some headwinds. We had seen headwind of extended furloughs and number of furloughs going up. We had also seen the headwind of Super storm Sandy.

There was no power for about a week or two in eastern part of the US. Our people have worked extremely hard and it is also a reflection of our relationship with our clients. Because we have strong relationship with our clients, because our people have worked extremely hard, we have been able to address or mitigate those headwinds which we saw in the middle of the quarter.

The result of the deals which we won in the previous quarters is showing up. The environment is still challenging. The US is still going through challenges. The financial industry which is a very large segment for us is still undergoing challenges. Europe is unstable because of the economic challenges. We have done this in a challenging environment. We remain cautiously optimistic. We have maintained our guidance for the year at 5 percent organic, which implies a growth of 2.7 percent next quarter.

Q: This is a first quarter where you are not changing your guidance in a while, you have delivered better numbers in terms of volume growth and pricing, could it be something in the environment or your confidence in your clients is changing and your challenging time is troughing out, that I think is what your investors would be wanting to know today?

Shibulal: This quarter is a reflection of many things that we have done in the past. We have got more executive strategies on four verticals, three pillars. In this quarter BPO and Finacle has done exceedingly well. Both have grown quite strongly for this quarter.

So, it is a reflection of all-around growth. It is a reflection of execution of our strategy yielding results. It is a reflection of our deal-wins in the past yielding revenue in this quarter and mitigating many of the headwinds, which we saw in the middle of the quarter.

Q: Any milestone payments that came into the revenue contribution for this quarter as well. I know you don't talk specific clients, but there are large milestone payments as well?

Shibulal: No.

Q: What is it that you are baking in for the next quarter in terms of where you hold margins? What are the comparable margins for Lodestone as well? What did the blended come to?

Bansal: We have maintained our margins, we instituted wage hike for offshore at average about 6 percent in the quarter, but inspite of that we have been able to maintain our margins. The only drop of 0.2 percent is primarily because of the rupee appreciation of 0.5 percent during the quarter.

All of us have worked very hard this quarter in terms of bringing in more efficiency into system and delivering on the top-line and the bottom-line. Going forward, in January we had committed to give on-site wage increases of 2-3 percent and that is going to impact our margins. So, we have baked in about a 1 percent drop in operating margin for the next quarter as of now.

In terms of Lodestone it is too early to give average numbers. Lodestone, it has a very soft quarter, Q4 is typically a very soft quarter for consulting European company, so their margins are still low single digit margins.