Infosys Q3 earnings: Five takeaways

Infosys, India’s second-largest software services provider, beat expectations for fiscal third-quarter profit, and raised its full-year sales forecast to meet industry growth estimates.

Here are five important takeaways on what's ahead:

AGGRESIVE COMMENTARY

The single most important takeaway might be CEO Shibulal saying the year ahead will be “exciting,” which is the strongest comment that’s come from the normally conservative company about the demand outlook in recent memory. Infosys underpinned this comment with an increase in the forecast for the full year.

MARGIN SURPRISE

Infosys’s EBIT margins beat expectations, which expanded 140 basis points sequentially to 25%. Increase in margins reflects improvement in operational efficiency. The company’s EBITDA margins expanded over 300 basis points to 27.7%.

ATTRITION CONCERNS

Attrition rates continued to rise at Infosys, implying Infosys will have to work hard to retain good talent as poaching could pose an increasing threat with improving macroeconomic conditions. At 18%, Infosys’s employee attrition rate is the highest among tier-1 IT firms, on a quarter-annualised basis.

Last quarter, the company’s attrition rate stood at 17.3%. Attrition fell on an absolute basis, CEO Shibulal said.

COST CUTS WORKING

Infosys has been aggressively reducing costs and chief financial officer Rajiv Bansal said the company was seeing “early but promising results” of efficiency efforts. Infosys had 1,58,404 employees on December 31, a net reduction of 1,823 staff from the previous quarter.

CLIENT CONFIDENCE

Infosys continued to add clients strongly and said its clients are gaining confidence to invest in strategic initiatives as the macroeconomic environment improves. The company added 54 clients during the quarter including one new client in the $200 million segment.