Business Standard

Monday, December 23, 2024 | 06:40 AM ISTEN Hindi

Notification Icon
userprofile IconSearch

Infosys: High attrition, weak growth are key concerns

Operating margin declines 40 bps to 25.1%, sequential rise in revenue disappoints, besides other worries

Malini Bhupta Mumbai
Weak growth, high attrition and declining share of top clients in revenue continue to plague Infosys. The struggle to grow the business continues, though, it managed to surprise on profitability while announcing its financial results for the quarter ended June.

In the first quarter of FY15, sales were a disappointment, with dollar revenue growing 1.9 per cent over a quarter and seven per cent over a year, to $2.13 billion. However, it managed to prevent margins from declining sharply, despite the impact of wage rises and a stronger rupee. The operating margin declined 40 basis points to 25.1 per cent, against a decline of 200-230 bps anticipated by analysts.

A large part of the margin surprise was driven by higher utilisation, excluding trainees. It is now 80.1 per cent, compared with 76.7 per cent at the end of the fourth quarter of FY14. The continued offshore push helped arrest the fall. The net margin stood at 22.6 per cent, against 23.2 per cent in March quarter.

That’s where the good news ends, as the quarterly performance does not seem to suggest the company is out of the woods. It added 61 clients during the quarter, with a total contract value (TCV) of $700 million. While the TCV has been steadily moving up over the year from $500 million to $700 million, revenue growth continues to be anaemic.

  North America grew 3.7 per cent, while the rest of world, Europe and India declined 0.8 per cent, 1.3 per cent and 8.9 per cent, sequentially, in constant currency. The company has maintained a revenue growth expectation guidance of seven to nine per cent for FY15. Analysts believe this implies a compounded quarterly growth rate of 2.4 - 3.5 per cent. Meeting the higher end of this forecast could be tough, given the weak growth expected in the third and fourth quarters.

Over several quarters, the share of top clients has continued to fall as a share in overall revenue. The top 10 clients contributed to 24 per cent of revenues in Q1 of FY14 and this declined to 22.9 per cent in Q1 of FY15.

Spark Capital says: “Revenues were lower than estimates, with a sequential volume growth of 2.9 per cent. Decline in the top 10 clients is a concern and increased the risk of downgrade to the FY15 revenue forecast.”

Attrition could also hamper growth revival. The quarterly annualised attrition was 26 per cent, say analysts, significantly higher. Though Infosys claims all efforts to arrest this, the measures have not yielded much.

Don't miss the most important news and views of the day. Get them on our Telegram channel

First Published: Jul 11 2014 | 9:30 PM IST

Explore News