Infosys PAT a tad below our expectations: Sharekhan

Sanjeev Hota, Asst. Vice President Research (IT), Sharekhan shared his views with Krishna Merchant on the Infosys results and the outlook for the IT companies.

Are Infosys' June 2011 quarter results in line with your expectations?

Yes, the performance is largely in line with our expectations. There was not much variance on the revenue front. However, the PAT (Profit After Tax) at Rs 1,722 crore was marginally below expectations. We had expected the net profit to come in at around Rs 1,742 crore.

What about the guidance?

We are disappointed with the guidance. The company expects the full-year EPS in the range of Rs 128 – 130, as compared to the market expectation of Rs 132. This has caused the stock to fall sharply post results.

Why have the operating margins dipped marginally this quarter?

The margins came in at 29%, which translates into 270 basis point (bps) sequential fall due to wage hikes. We expected margins to be at 29.7%, though the Street was expecting them to be around 31%.

What is your outlook on outsourcing demand as there are concerns in Europe that sovereign debt crisis may spread to Italy and Spain?

The outsourcing demand will not get affected for FY12 because the budgets are already finalised and most of the spending comes from the US region. Earnings of Accenture and Oracle further emphasize that the outsourcing demand for FY12 will remain intact.

The southern part of Europe is still a concern, but the contribution to the revenue is below 5 per cent to the information technology (IT) sector. However, if the contagion is going to spill over to other countries, it may affect outsourcing demand in FY13.

The BSFI segment grew at 3.4% sequentially. Do you expect growth in this segment to taper-off going forward?

The BFSI segment saw strong growth in FY10 as it was a year of merger and acquisitions. The top four companies – TCS, Wipro, Infosys and HCL Technologies – reported robust BSFI growth because it was right after recession and there was high spending in M&A.

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