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Data analytics investments paying off big for Infosys

(Bloomberg) -- Infosys Ltd. posted a 38 percent rise in third-quarter profit after investments in digital technologies such as data analytics helped boost growth and the outsourcer received a one-time tax benefit.

Net income rose 51.3 billion rupees ($806 million) in the three months ended December, compared with the 36.1 billion rupee average of estimates compiled by Bloomberg. The company booked a $225 million gain in the quarter, part of a series of tax-provision reversals agreed upon with U.S. tax authorities. Sales for the full year will rise 5.5 to 6.5 percent in constant currency terms, it said.

The earnings announcement is the first since Salil Parekh took over as chief executive officer last week after a boardroom tussle that ushered out Vishal Sikka. Asia’s second-largest software services company had been an investor favorite before a very public clash between its directors and several founders over corporate governance issues. Parekh’s pledged to keep steering Infosys away from a traditionally labor-intensive model.

“Infosys just saw through one of its worst recent years but the company has the potential of completing strategic retooling and improving capital allocation,” analysts at CLSA said in a note ahead of the earnings.

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Employees walk past an Infosys Ltd. logo at the company's campus in Electronics City in Bangalore, India, on Monday, Jan. 27, 2013. Infosys, India's second-largest software exporter, raised its annual sales growth forecast for the second consecutive quarter as economic recovery prompts clients in Europe to spend more. Photographer: Vivek Prakash/Bloomberg

Sales rose 3 percent to 177.9 billion rupees, compared with the 178.4 billion rupees projected.

Parekh, a former board member at Capgemini SE, has a master’s degree in computer science from Cornell University and has a reputation for being affable but aggressive. The 53-year-old CEO will need to draw on those attributes in navigating the relationship with Infosys’s powerful founder-cohort. Chief among them is former chairman Narayana Murthy, who last year attacked large pay hikes for senior executives as well as generous exit packages for departing executives.

India’s $154-billion IT services industry is investing heavily in cloud- and artificial intelligence-based services to jump-start growth, as clients in key segments such as banking and finance turn increasingly to automation. Infosys maintained its U.S. dollar sales growth forecast at 6.5 to 7.5 percent, a prediction that was cut last year after the boardroom upheaval.

“The combination of robust portfolio and productized services strategy imparts confidence of industry-leading revenue growth” of about 9 percent in U.S. dollar terms annually up to fiscal 2020, Sudheer Guntupalli, an analyst at Ambit Capital Pvt, wrote in a note this week.

Infosys reported earnings a day after larger rival Tata Consultancy Services Ltd. posted quarterly profit that matched expectations.

Its shares traded 0.3 percent higher on Friday in Mumbai, extending its gain in the past year to 7.8 percent.