RESULT ANALYSIS: Infosys Technologies

Slower topline growth in a strong demand scenario coupled with weak profit guidance for FY12 saw the scrip tank 8 per cent in intra-day deals.

Infosys Technologies reported a 2 per cent sequential jump in its consolidated revenues for the fourth quarter ended March 2011 to Rs 7250 crore, as against the street expectations of around 5 per cent growth. A pricing increase of 2.1 per cent quarter-on-quarter (q-o-q) offset volume de-growth of 1.4 per cent over the December 2010 quarter. However, shortening tenure of orders as well as rupee depreciation of 1.1 per cent versus the dollar in the March 2011 quarter played spoil sport.

Consolidated net profit came in at Rs 1818 crore, a growth of just 2.15 per cent over the last quarter vis-à-vis street expectations of Rs 1890 crore. However, a jump of 43 per cent q-o-q in other income to Rs 415 crore cushioned bottomline growth for the quarter. EBIT margins fell below the 30 per cent mark for the first time in the last three quarters at 28.9 per cent, contracting by 122 basis points sequentially. This was on the back of drop in utilization (excluding trainees) by 550 basis points q-o-q to 75.2 per cent.

Click here to read Q&A with Gaurang Shah of Geojit BNP Paribas on Infosys' results

Amongst the key business metrics, revenues from critical verticals like BFSI and Telecom dipped by 0.7 per cent and 4.8 per cent sequentially. On the other hand, manufacturing and retail that form a smaller pie of overall revenues grew by 5 per cent and 1 per cent q-o-q, respectively. While North American revenues grew 0.5 per cent q-o-q, the Europe and rest of the world revenues grew by 1.6 per cent and 2.1 per cent q-o-q, respectively. It added a modest 34 clients this quarter vis-à-vis 40 in the previous quarter.

While attrition remained flattish at 17 per cent, the net employee addition was lower at 3041 versus 5,311 in the previous quarter. Infosys plans to add 45,000 people in FY12 broadly in-line with 43120 gross additions made in FY11.

For FY12, Infosys expects revenues to be between Rs 31,727 crore and Rs 32,270 crore implying a growth of 15.4 per cent to 17.3 per cent over FY11. It expects earnings per share (EPS) to be between Rs 126.05 and Rs 128.21, up 5.5 per cent to 7.3 per cent.

While the revenue growth guidance was broadly in-line with street expectations, the EPS guidance was materially below consensus estimates of Rs 150-152. Analysts believe this could be attributed to the assumption of a weaker rupee versus the USD (1USD= Rs 44.50) by the company. For the next quarter, Infosys expects revenues of Rs 7311-7382 crore, a growth of a mere 1-2 per cent over the March 2011 quarter. The EPS guidance stands at Rs 27.59-28.02, implying de-growth of 12-13 per cent on a sequential basis. The EBIT margins are also expected to contract by 200 basis points (bps) and could be due to shift in management's strategy towards chasing deals aggressively.

While the management is optimistic on the demand environment and expects it to be normal this year, it expects margins to dilute significantly. Clarity on client ramp-ups in the telecom and BFSI space as well as overall client budgets are the key monitorables.