Jinsy Mathew spoke to Sanjeev Hota, AVP Research, Sharekhan, for an analysis of Infosys' Q1FY13 results.
Smartinvestor : How do you read the numbers put out by Infosys today?
Sanjeev Hota : It has been a very disappointing quarter for the company as a whole. Revenue, margins, net profit were all below our expectations. So on the whole the earnings were below our and market expectations. One good thing was the volume growth which was 2.7% sequentially was better than our expectations. Apart from that, there is nothing that one can cheer about the numbers.
Smartinvestor : FY13 guidance of 5% top line growth and 1% bottom-line growth. Do these numbers surprise you even though Infosys is known to be a conservative company when it comes to projections?
Sanjeev Hota : I think it is more to do with realistic thinking rather than being conservative. Infosys is facing some client specific issues and they are uncertain about the client spending pattern that is about to happen in the next few quarters. The days of promise-lower-deliver-higher are history now. I believe this guidance is also on the basis of optimistic past and the company will miss the guidance in Q2 as well. Moreover, Q3 and Q4 is generally difficult for this sector.
Smartinvestor : We have no quarterly guidance this time around. Does that highlight the cloudiness faced by the company?
Sanjeev Hota : Its a reflection of the environmental uncertainties and the management is clearly saying that they are not getting a clear view as to how the client is going to spend in the next two-three quarters. So that’s why they have stopped giving the sequential guidance.
Smartinvestor : What is the key takeaway from the numbers announced?
Sanjeev Hota : If one looks at this quarter even after adjusting the 16 million write down in revenues because of a European client, the numbers are still below expectations. Going forward with the company not providing sequential expectations, subdued projections for FY13 is clearly saying some client specific issues that the company is facing. We believe that the company will continue to underperform the market in the near to medium term.
Smartinvestor : Rupee PAT and EBIT disappointed even after the Rupee depreciating over 10%. How do read this?
Sanjeev Hota : In the rupee term this quarter, I believe they have given some salary hike which has taken about the currency benefit. Also, revenue in Rupee terms has gone up 9% q-o-q. So there is some benefit of Rupee depreciation being played out. But till the time the company doesn't fix the core earnings, the Rupee depreciation is not going to help the company.
Smartinvestor : Do you expect a re-rating of the stock anytime soon?
Sanjeev Hota : We have a HOLD rating on the stock currently. But given the 10% fall today the downside is capped and so is the upside due to fundamental performance.
Smartinvestor : What is your near-term outlook for the rupee?
Sanjeev Hota : Given the macro environment, Rupee should stay around 54-56 in the near term.
