The March quarter numbers of Infosys are worse than what peers have reported so far. Cross-currency risks have taken a bigger toll on the company than on peers. While the other information technology majors — TCS, Wipro and HCL Tech — reported revenue growth in constant currency terms, Infosys reported a 0.4 per cent decline. Revenue growth in constant currency gives a sense of the core business growth of these companies, ironing out impact of cross- currency movements. Infosys has disappointed on this count, as it suggests business momentum remains weak. In dollar terms, revenues declined 2.7 per cent to $2.15 billion. Analysts believe cross-currency movement will have a 300-basis point impact on dollar revenues, going by this quarter.
For the full year, Infosys has reported revenue growth of 7.1 per cent (in constant currency) and 5.6 per cent in dollar terms. Currency headwinds and higher spends on sales have also impacted the earnings before interest and taxes margin, which declined 100 basis points (bps) sequentially to 25.7 per cent in the quarter. Operating margin for the full year expanded by 190 bps to 25.9 per cent. Other operating metrics such as utilisation declined during the quarter. Utilisation, including trainees, declined to 72.8 per cent from 75.7 per cent in the December quarter. Utilisation excluding trainees declined to 78.6 per cent from 82.7 per cent. Attrition, however, has improved to 18.9 per cent in the March quarter from 20.4 per cent in the December quarter.
Even as the March quarter was disappointing, the management has set a very ambitious growth target for the next few years. The company believes its investments in re-skilling, automation and improved client engagement will deliver 10-12 per cent revenue growth in constant currency terms in FY16. Reliance Securities says though the company’s quarterly performance missed expectations, “We take strong cognizance of 10-12 per cent revenue guidance for FY16, compared to 7.1 per cent registered in FY15 (in constant currency terms).”
This implies sequential growth of three per cent over the next few quarters. As the third and fourth quarters are weak for the company, analysts believe the firm might have to grow at 3.5-4 per cent in the first two quarters.
Not only in FY16, the company is expecting to grow revenues of the traditional business at a 13-14 per cent compounded annual growth rate (CAGR) over the next five years as well, as it expects the company’s top line to touch $20 billion by 2020. While the traditional revenues will grow to $16.5 billion, products and platform will account for $2 billion. Inorganic growth will account for $1.5 billion, suggesting Infosys has appetite for a big acquisition. The company expects revenue per employee to tough $80,000 by 2020 and the headcount to touch 250,000. This implies a significant improvement in productivity. Most analysts claim this is an ambitious road map and the company might find it tough to get there. However, what it gives the market is clarity on the path.
Even as the March quarter was disappointing, the management has set a very ambitious growth target for the next few years. The company believes its investments in re-skilling, automation and improved client engagement will deliver 10-12 per cent revenue growth in constant currency terms in FY16. Reliance Securities says though the company’s quarterly performance missed expectations, “We take strong cognizance of 10-12 per cent revenue guidance for FY16, compared to 7.1 per cent registered in FY15 (in constant currency terms).”
This implies sequential growth of three per cent over the next few quarters. As the third and fourth quarters are weak for the company, analysts believe the firm might have to grow at 3.5-4 per cent in the first two quarters.
Not only in FY16, the company is expecting to grow revenues of the traditional business at a 13-14 per cent compounded annual growth rate (CAGR) over the next five years as well, as it expects the company’s top line to touch $20 billion by 2020. While the traditional revenues will grow to $16.5 billion, products and platform will account for $2 billion. Inorganic growth will account for $1.5 billion, suggesting Infosys has appetite for a big acquisition. The company expects revenue per employee to tough $80,000 by 2020 and the headcount to touch 250,000. This implies a significant improvement in productivity. Most analysts claim this is an ambitious road map and the company might find it tough to get there. However, what it gives the market is clarity on the path.