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Infosys (INFY) Q4 Earnings in Line, Revenues Strong Y/Y

Infosys Ltd. INFY reported fourth-quarter fiscal 2016 earnings per American Depositary Share (ADS) of 23 cents, in line with the Zacks Consensus Estimate, rising 7% on a year-over-year basis.

The bottom-line performance largely benefited from strong revenue growth. Also, a considerable reduction in cost of sales aided the earnings improvement. However, foreign currency volatility and expected seasonality were major headwinds.

For fiscal 2016, Infosys reported earnings per ADS of 90 cents, which reflected year-over-year growth of 1.9%.

Quarterly Details

Revenues increased 13.3% year over year to $2,446 million, but missed the Zacks Consensus Estimate of $2,451 million by a whisker. Moreover, in terms of constant currency, revenues were up 15%.

For fiscal 2016, Infosys reported revenues of $9,501 million, up 9.1% from the prior year figures.

Top-line growth was largely driven by lucrative contract wins, higher volume growth and enhanced operational efficiency. Improvement in client relationships, stable attrition rate and better employee engagement also contributed to the overall quarterly performance.

Infosys’ operating profit climbed 12.6% year over year to $625 million. Management believes that strong focus on operational improvement boosted the company’s operating profits in fourth-quarter fiscal 2016.

Geographical Performance

The company witnessed growth in all four regions where it operates. Fourth-quarter sales in India, Rest of the World and Europe rose about 9.1%, 4% and 2.4% sequentially, respectively. Meanwhile, sales in North America improved marginally (0.5%).

Industry-wise Performance

Three of the four reporting segments witnessed modest growth. Energy, Utilities, Communications & Services and Retail & Life Sciences emerged as the biggest gainers, wherein revenues rose 4.6% and 2.4% on a sequential basis, respectively. Revenues in the Manufacturing & Hi-Tech division improved 1% sequentially, while Banking & Financial division contracted 0.3% on a sequential basis.

Notable Developments

Infosys ended the year with an impressive quarter, having signed major deals with the likes of North America’s dominant packaged food company ConAgra Foods, Inc., and utilities giant Welsh Water.

Apart from this, the company’s strategic collaborations with leading technology providers in the industry and complementary acquisition plans added to its growth. The quarter saw Infosys partnering with technology behemoth Microsoft Corp. to aid the digital transformation of health institutions through the deployment of smart analytics solutions. Also, Infosys teamed up with Hershey Company to build predictive analytics capability using open source information platform on Amazon Web Services.

Moreover, most of Infosys’ businesses including Panaya, Skava & Edge software product have recorded solid growth in the quarter that benefited both the top and the bottom line. In a bid to solidify its market position and focus more on customers, the company came up with three distinguished offerings, namely, Artificial Intelligence, Knowledge-based IT and Design thinking during the second quarter fiscal 2016. During the fourth quarter, these services continued to gain solid traction after being adopted by major clients like Bank Leumi (UK) PLC, Al Ahli Bank in Kuwait and Albaraka, one of Morocco’s leading microfinance institutions.

Further, Infosys’ “Zero Distance” program, which aims to foster innovation in every project undertaken by it, witnessed steady progress during the quarter. Infosys’ Zero Distance program contributed to employee improvement which, in turn, drove the company’s overall performance. Infosys has significantly improved its content, thanks to the Zero Distance program.

The company’s recent acquisitions, including the information management consulting services firm Noah Consulting, LLC, Delaware-based start-up, WHOOP, and an Israeli-based company CloudEndure, boosted its operations. These investments are a part of Infosys’ $500 million innovation fund – an integral part of its New and Renew strategy – intended to capitalize on the growth potential of disruptive technologies. While investment in WHOOP is expected to strengthen its foothold in new-age wearable technologies, the CloudEndure venture is likely to fortify its footprint in the cloud business.


As of Mar 31, 2016, Infosys had cash & cash equivalents of $4,935 million, reflecting an improvement from $4,859 million recorded as of Mar 31, 2015.

Guides High

Concurrent with the strong financial performance, Infosys gave robust guidance for the fiscal year ending Mar 31, 2017. Incorporating the impact of currency translation, the company now expects revenues to rise in the range of 11.8% to 13.8% year over year.

To Conclude

Infosys reported steady results despite formidable market headwinds like a strong U.S. dollar, sluggish macroeconomic growth and intensifying competition. However, Infosys’ strong commitment toward constant innovation, business realignment to attain better operational efficiency and major contract wins are likely to support growth for the rest of the fiscal. Apart from this, the rapid traction of AiKiDo offerings and strategic alliances also bode well for future growth.

Infosys currently holds a Zacks Rank #2 (Buy). Other stocks in the industry include CoStar Group Inc. CSGP, EarthLink Holdings Corp. ELNK and GTT Communications, Inc. GTT, each holding the same rank as Infosys.

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