Forbes India 15th Anniversary Special

Infosys' FY15 projection below Nasscom expectation, yet again

Analysts, however, expected it to be lower

Debojyoti Ghosh
Published: Apr 16, 2014 02:49:18 PM IST
Updated: Apr 16, 2014 09:53:42 PM IST

In keeping with its recent trend, Infosys has yet again projected revenue growth for the current fiscal 2014-15, below Nasscom’s expectation for the industry. The country’s second-largest IT services exporter on Tuesday predicted a dollar revenue growth of 7-9 percent in FY15, lagging the 13-15 percent growth expected for the industry.

Earlier considered as an indicator of Indian IT industry's overall performance, Infosys has failed to post market leading growth over the last few fiscals. Even for the recently concluded FY14, the Bangalore-based company managed to touch the lower-end of its guidance at 11.5 percent, still below the industry growth rate of 13 percent in FY14.

Last month during an analyst call, Infosys had indicated at a muted March quarter earnings and expected to touch the lower-end of its revenue outlook for fiscal 2013-14. Speaking at an investor call with Deutsche Bank in February, Infosys chairman N R Narayana Murthy pointed out that he is ‘not happy’ with the current growth rate of the company.

For the quarter stretching from January to March, Infosys posted a 0.4 percent sequential decline in dollar revenue at $2,092 million, while year-on-year it was up 7.9 percent. Net profit during the March quarter stood at $487 million, up 5.2 percent sequentially.

In rupee terms the IT company recorded net profit of  Rs 2,992 crore during the January-March period, up 4.1 percent quarter-on-quarter. Revenue was down 1.2 percent sequentially at Rs 12,875 crore during the period. For the full year ended March 31, the company’s net profit was up 13 percent at Rs 10,648 crore, while revenue went up 24.2 percent at Rs 50,133 crore.

“I am pleased that we have been able to double our growth rate for the full year compared to last year, though performance in the last quarter of FY14 has been disappointing,” said S D Shibulal, CEO and managing director, Infosys, adding that “We have guided for a revenue growth of 7-9 percent next year and remain firmly focused on building the growth momentum by making all the necessary investments in our business.”

Analysts were expecting Infosys’ revenue growth forecast to be in the range of 6-8 percent for FY15.

According to Dipen Shah, head, private client group research, Kotak Securities Infosys’ results and guidance were largely in line with estimates. “The 7-9 percent growth in FY15 indicates about 2.5 percent compounded quarterly growth rate (CQGR) in FY15, which is encouraging,” said Shah.

“While a few verticals and geographies have seen a decline quarter-on-quarter, that was in line with earlier management commentary. We believe that, the initiatives being taken by the management should lead to higher growth and stable margins in second half of FY15 and FY16,” noted Shah.

While announcing the fourth-quarter earnings, Infosys pointed out that client in some sectors are still struggling to grow including retail, consumer packaged goods (CPG) and high-tech.

“The weakness in the quarter is largely driven by the Retail & CPG industry verticals which saw a 3.5 percent quarter-on-quarter (q-o-q) decline in revenues. In terms of geography revenues from Europe grew by 1 percent q-o-q, while in North America it declined by 0.8 sequentially,” noted Ankita Somani, IT analyst, Angel Broking.

Since Murthy’s returned to Infosys last June as chairman, the IT-services firm has been on a restructuring drive of its sales team in the country and abroad, including the US, its largest outsourcing market. The IT firm is looking at optimising costs and streamlining its workforce across locations. During the March quarter, Infosys posted margin at 25.48 percent, a 50 basis points expansion sequentially.

Infosys and its subsidiaries added 50 clients during the January-March quarter and 238 during the year. Net addition of employees during the quarter stood at 2,001. The company had 160,405 employees as of March 31. The IT-services major announced a wage hike of 5-7 percent for its employees effective April. For its workforce abroad, the hike will be 1-2 percent, the company noted. Attrition rate during the January-March quarter stood at 18.7 percent, one of the highest in the company's history. Twelve months ago attrition rate stood at 16.3 percent.

“The company signed four large deals during the quarter with total contract value (TCV) worth $700 million plus. We believe that the impact of current high level exits could be felt in the near term. However, a company like Infosys is system driven with a healthy management bandwidth and hence the impact will not be long lasting,” noted Somani. The board recommended a final dividend of Rs 43 per share for fiscal 2014.

Shares of Infosys closed at Rs 3260.45, up 0.76 percent on the Bombay Stock Exchange on Tuesday, while the sensitive index, Sensex, ended the day down 0.54 percent.  

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