The quarterly results of Infosys, the country’s second-largest information technology services company, failed to cheer the markets for a third time in succession.
What was felt significant for the quarter ended June 30 was the lack of management confidence in sticking to its age-old practice of giving a quarterly revenue expectation, citing an “enormous amount of volatility” in the environment, while lowering the already conservative revenue growth outlook almost by half, to five per cent from the earlier eight to 10 per cent.
The market reacted sharply, with Infosys’ stocks getting battered, to close at Rs 2,265.25, a drop of 8.2 per cent from yesterday’s close. Clearly showing the Street had been anxiously waiting the Bangalore-based company to deliver an all-round performance and was, instead, disappointed with the numbers. Except the 2.7 per cent of volume growth, the company was lacking on most of the other parameters — utilisation, outlook, pricing, operating margins or performance in key verticals.
Net profit went up 32.9 per cent to Rs 2,289 crore when compared with the same quarter in 2011-12, primarily aided by a depreciating rupee. Revenue, at Rs 9,616 crore, went up 28.5 per cent compared with the corresponding quarter last year. However, on a sequential (compared with the previous quarter) quarter basis, net profit fell 1.2 per cent and revenue went up only 8.6 per cent.
The company failed to meet its earlier dollar-term revenue expectation for the quarter, reporting revenue of $1,752 million against the projected $1,771-1,789 million. It said the dollar-term revenue got impacted because of cancellation of a transformational project from a European client in the energy & utilities segment, a revenue reversal of $15 million. Besides, currency movements adversely affected revenue by $13 million during the quarter.
However, S D Shibulal, managing director and CEO, said the project cancellation was a one-off happening, while the company was working with the same client for other projects. Yet, he acknowledged a pricing pressure, sporadic now and confined to specific verticals and clients in sectors such as banking, financial services and insurance. Pricing declined by 3.5 per cent.
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Infosys said the operating margin had declined because of an increase in the salary bill on account of onsite hiring and visa costs. In the quarter, Infosys hired about 700 people onsite, which affected margins by 80 basis points. Costs associated with visa applications impacted the margins by about 80 bps, said Chief Financial Officer V Balakrishnan.
E&U has been a growth driver for the company, but performed the worst among the segments with a sequential decline of 8.2 per cent, primarily because of the project cancellation. The financial services and insurance vertical, accounting for a little over a third of Infosys’ revenues, declined by one per cent compared to the previous quarter. Manufacturing and retail & life sciences showed growth of 2.5 and 2.3 per cent, respectively.
“Infosys reported yet another disappointing quarterly result. The dollar revenue declined 1.1 per cent q-o-q to $1,752 million as against expectations of it remaining flat. In constant currency terms, too, the company has not been able to meet its dollar revenue guidance,” said Ankita Somani, research analyst-IT, Angel Broking.
The company added 51 clients during the quarter. And, 9,236 employees (net addition of 1,157), taking the total head count to 151,151. As on June 30, cash and cash equivalent was Rs 20,596 crore (it was Rs 16,969 crore on June 30, 2011).