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Infosys set for best day in over seven years after profit beat, surprise outlook

BENGALURU (Reuters) - Shares of India’s Infosys Ltd on Thursday soared 15% to a fresh record high, a day after large deal wins and tighter costs helped the country’s second largest IT firm post better-than-expected profit and reinstate its full-year outlook.

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The Bengaluru-based software services provider reported a 11.5% jump in profit in a quarter that was expected to be disruptive for India’s nearly $200 billion IT industry as the coronavirus outbreak crimped client spending.

Infosys shares were on track for their best day in more than seven years on Thursday, and lifted the benchmark Mumbai index 0.5%.

“Infosys displayed class-leading performance with strong offense on revenue recovery and large deal signings, and solid defense on margin expansion and cash conversion,” JP Morgan said in a research note.

JPM raised Infosys’ target price to 1,000 rupees from 900 rupees, and reiterated an ‘overweight’ rating.

Improved demand visibility from deal signings and resumption of client decision making helped Infosys issue a “surprisingly strong annual guidance”, JPM added.

The firm expects revenue to be flat or grow 2% on a constant currency basis and operating margins of 21%-23% for 2020-21. This compares with a revenue growth of 9% or more in the last two years on a constant currency basis.

The company had not provided any projections in the March quarter, citing COVID-19-related uncertainty.

Larger rival Tata Consultancy Services missed June-quarter profit estimates, while Wipro Ltd reported stronger-than-expected earnings but withheld providing outlook.

Infosys was “reasonably optimistic” about the financial services sector, but expects continued weakness in the capital markets, cards and payments industry, Chief Operating Officer UB Pravin Rao told reporters Wednesday on a conference call.

Chief Financial Officer Nilanjan Roy said the company kept a tight lid on costs related to travel, marketing, hiring and discretionary expenses.

Net profit climbed to 42.33 billion rupees ($562.45 million) from 37.98 billion rupees a year earlier, while revenue rose 8.5% to 236.65 billion rupees.

Infosys signed $1.74 billion worth of large deals in the three months to June 30. That was higher than the $1.65 billion in the preceding quarter, but lower than a year earlier.

($1 = 75.2600 Indian rupees)

Reporting by Sachin Ravikumar; Additional reporting by Derek Francis and Chris Thomas; Editing by Maju Samuel, Sriraj Kalluvila and Shailesh Kuber