Infy logs 14% growth in profit

But lower-than-expected net profit of Rs 1,780 crore fails to impress markets.

India’s second largest information technology (IT) exporter, Infosys Technologies, today failed to impress the street with a lower-than-expected third quarter growth. This, despite the company beating its own guidance and revising it for the third time this financial year.

The Bangalore-based company, which counts leading names such as British Petroleum, Bank of America and American Express among its clientele, posted a lower than expected 14.2 per cent growth in its net profit for the quarter ended December 31, 2010, to Rs 1,780 crore, when compared with the corresponding quarter a year ago. The revenue grew at 23.8 per cent to Rs 7,106 crore in the quarter when compared with the corresponding quarter last year, which took its toll at the bourses.

The company’s share price shed 4.82 per cent during trading hours and closed at 3,21 Rs 30 on the Bombay Stock Exchange. The street was expecting the profits and revenues to be in the range of Rs 1,815-1,830 crore and Rs 7,200 crore respectively. On a trailing quarter basis (when compared with the previous quarter of the current financial year), the company’s net profit grew marginally by Rs 5 per cent and revenues went up by Rs 3 per cent.

The street was, however, disappointed more with the volume growth of 3.1 per cent, much lower than the 7.2 per cent registered in the September quarter. “Other than the volume growth, the guidance was also disappointing,” said an analyst on condition of anonymity. The fall in volumes was attributed to shrinking project sizes.

Infosys revised its Q4 and current financial year guidance upwards. It guided for a consolidated revenue to be in the range of Rs 27,408–27,481 crore, projecting a growth of 20.5-20.8 per cent. The company said its earnings per share (EPS) is expected to be in the range of Rs 31.06 to Rs 31.28 with y-o-y growth of 10.8-11.6 per cent. At the end of the second quarter in financial year 2010-11, the company had given a revenue guidance of Rs 26,951-27,165 crore with a y-o-y growth of 18.5 to 19.4 per cent. In dollar term, the company has revised its guidance in the range of $6.04-6.06 billion with a y-o-y growth of 25.7-26.1 per cent.

“The Q3 results of Infosys were marginally lower than our expectations. The management commentary reflects caution on the back of macroeconomic concerns. The dollar revenue and FY11 guidance are below market expectation,” said Dipen Shah, Senior VP (PCG Research), Kotak Securities. He said the underlying fundamentals of the company remain strong.

“Infosys Q3 results are disappointing as volume growth of 3.1 per cent q-o-q is the lowest in the last five quarters. As it managed to get pricing increases, it seems like it is focusing yet again on profitability as against growth,” said Ganesh Duvvuri, VP, Institutional Equities-Research, Edelweiss Capital.

The operating profit at Rs 2,147 crore was up 20.3 per cent when compared with the corresponding quarter the previous financial year, and Rs 3 per cent when compared with the previous quarter of the current financial year.

S Gopalakrishnan, CEO and MD, said despite Q3 and Q4 being the softer quarters historically, the company has achieved all-round growth while managing to tide over the macro-economic environment and rupee volatility.

“There is a seasonality in the spending habit of clients as they tend to spend most part of their budgets in the early part of the year. In spite of that, we have seen a satisfactory quarter which is reflected in the company’s overall performance,” he said. The growth was led by the BFSI (banking, financial services and insurance) segment, followed by manufacturing and retail. Telecom still saw a bit of sluggishness, but contributed 1 Rs 5 per cent to revenues during the quarter.

Though the third quarter is a weak one, Infosys added 40 new clients during the period. It added one client in the $100 million category and added eight in the $10 million category.
 

THE MATRIX
	Q2 (2010-11) in Rs  cr	Q3   (2010-11) in Rs  cr	%  change	Q3  (2009-10) in Rs  cr	%  change
Revenue	6,947	7,106	2.28	5,742	23.8
Operating profit	2,098	2,147	2.3	1,784	20.3
Net profit	1,737	1,780	2.5	1,559	14.2
EPS	30.41	31.15	2.4	27.33	14
Volume growth	(not available)	3.1%	–	7.2%	—

The company said pricing went up 1.6 per cent, which brought some stability, as clients had asked for huge cuts during the global economic downturn. However, contribution of the top 10 clients to overall revenues fell 180 basis points to 25.7 per cent, compared with the same quarter a year ago. Duvvuri of Edelweiss said the company’s Q4 revenue growth guidance of 2 per cent in terms of dollar also seems to indicate that it is probably walking away from some existing large clients.

During the year, the company added 11,067 employees on a gross basis. The net addition was 5,311 discounting the 5,756 people who quit during the quarter. The company, however, said, its attrition during the quarter was lower compared to 6,618 people who quit during the second quarter of 2010-11.

The utilisation (excluding the trainees) of the company during the quarter dropped marginally to 80.7 per cent from 81.2 per cent reported in the previous quarter.

Meanwhile, the company’s Board of Directors has appointed R Seshasayee as the additional director of the company with immediate effect. Seshasayee is the managing director of Ashok Leyland.