)
The top brass of Infosys today had a conference call with analysts after the company declared its Q1 results. Infosys reported a net profit of Rs 2,374 crore for Q1 FY14, up 3.7%, while revenues were up 17.2% compared to the corresponding quarter last year. While the IT company left its FY14 dollar revenue target unchanged at 6-10%, the management said in the conference call that the constant currency growth will be at 7-11%. Edited excerpts from the conference call:
There is renewed optimism around the IT sector and its potential but it is not reflected in your commentary.
SD Shibulal: We have done well and our wins are good, which includes seven large deals in Q1. The challenge is volatility in our own performance. One quarter cannot be seen as secular trend. Growth is our focus and we are enthused but it’s a journey. We have seen volatility over the last few quarters. Also, we have to deal with regulatory changes in Australia and Canada which will impact staffing for new projects. However, we expect that in constant currency our revenue growth for the full year would be in the range of 7-11 per cent.
What will be the margin trend for the next few quarters and the model that will help you sustain margins?
Shibulal: Operating margins are at 23.5% same as Q4 of last fiscal and the rupee benefit has been offset by onsite compensation increase. Compensation has been increased by 8% offshore this year and three per cent for onshore in Q1. For the next three quarters, we expect an impact of $180 mn on margins. We have multiple levers. We will look at non-productive effort is removed. Onsite ratio is up to 32 per cent by a couple of percentage point. Utilisation has also gone up and that should give us positive lever on margins. Once trainees (4,000) come into the system margins will also improve. Compensation in Q1 has impacted and the second hike will impact in Q2.
Revenues from Europe are down sequentially rather sharply. Is it because of the telecom vertical?
Shibulal: There is no secular trend there and it is not because of any vertical. We have not lost any big client even though we completed some large transformational deals. But no secular trend there.Lodestone revenues increased sharply from $70 to $90 million (a growth of 30%) can you please elaborate on that and why it has happened.
Rajeev Bansal: It is doing well and we have a roadmap is in place. We are seeing good traction. Revenue growth has done well and it will continue to do well.
Stephen Pratt: We are excited and it is part of the strategy to expand the consulting piece. We combined management consulting group in the UK into Lodestone. We have work to do on integration but have a lot of confidence in the acquisition. Clients are excited about it. But we don’t expect Lodestone to grow at 30 per cent in coming quarters. In constant currency we grew 6% QoQ.
Shibulal: Lodestone growth has come from three aspects -- integration, accounting related shift and business growth or additional revenue growth.
Attrition is running at an all-time high of over 16 per cent. Will it impact operations?
Shibulal: Typically, in the first quarter, attrition spikes as people move away for further studies. Having said that, our actual attrition figure in Q1 is comparable with last year. We have given promotions and hikes so we hope attrition would settle down.
Can you please clarify on Lodestone’s incremental revenue of $20 million, is it because of UK’s merger into Lodestone? What is Europe’s performance without Lodestone?
Bansal: Some of the growth is because of integration and accounting issues. We are moving people and integrating so people movement is happening. We are delivering projects jointly with Lodestone and it is reflected in the overall revenues.
Shibulal: This quarter US has done better than Europe. A lot of transformational deals ended in Europe, but no secular trend or client loss in this quarter.
On rupee depreciation, do you intend to reinvest INR fall or any increase in earnings?
Bansal: The rupee has been very volatile. It’s difficult to take a view on rupee even though it has helped us in the quarter. At this point we have given guidance of INR at 59.39 against the dollar for the rest of the three quarters and we hope some of the wage hikes will be offset in the current year.
Are you making investments to deal with outcome of Immigration Bill like increasing onsite hiring?
Ashok Vemuri: It’s hard to predict what US Congress will do and what the Immigration Bill will do. Some norms on outplacements will have an impact on us once it becomes a reality and we are planning to deal with that. We will continue to invest to remain relevant to clients.
Any view on margins?
Bansal: We will not take a guess on margins but we will take measures to see we can maintain margins. While rupee is helping, the cross currency movement is not helping us.
