Infosys Q4 net up 3.3%; muted guidance sends shares tumbling
Bangalore: Infosys Ltd, India's second- largest software services exporter, today reported a 3.3 percent rise in fourth-quarter net profit but forecast lower than expected revenue growth on challenging global economy, sending its shares tumbling over 21 percent.
The company reported a consolidated net profit of Rs 2,394 crore for the January-March quarter of 2012-13 fiscal and posted 18.09 percent rise in revenues at Rs 10,454 crore.
The IT major pegged a revenue guidance of 6-10 percent, which is lower than that of IT body Nasscom, which expects industry to grow by 12-14 percent in the current fiscal.
The company departed from its earlier practice of giving out annual Earnings Per Share (EPS) guidance.
On the muted sales guidance for FY'14, Infosys CEO and Managing Director S D Shibulal told reporters here "That is a reflection of the volatility, which we have seen over the last two quarters. The environment remains volatile as well as mixed. There are challenges in the US and Europe."
The over USD 100-billion Indian IT-BPO sector gets about 80 percent of its revenues from the US and and Europe.
Reacting to the revenue guidance, Infosys's shares tumbled by 21.33 percent to Rs 2,295.45 apiece on the BSE, dragging down 30-share Sensex by nearly 300 points.
"Our clients are struggling taking decisions beyond the environment. Our ramp-up on some of the deals which we have won is slower than what we had expected in Q4 2012-13," he added.
He further added that the company has pegged a growth of 0.5 percent growth at the lower end and 2 percent growth quarter-on-quarter on the upper end.
"As usual our guidance is a statement of fact. We have looked at our pipeline, our visibility in the next year and taken a decision of a wide range in the guidance between 6 to 10 percent," he said.
Shibulal said pricing decline and cross-currency impact hit fourth quarter results.
"Q4 turned out to be a softer quarter than what we expected. Our volume went up by 1.8 percent in Q4 at the same time we had an impact of 0.7 percent due to pricing decline as well as an impact of 0.4 percent because of the cross currency movement. Both impacted Q4," he added.
Infosys Chief Financial Officer Rajiv Bansal said the global environment is volatile, which is affecting margins.
"I think the world is very volatile right now, the environment is very volatile and also considering that we have had growth challenges in the previous couple of quarters, I think we have set out for ourselves in terms of giving guidance which we believe is cheerful," he added.
He further said "If you look at the margins, we have done decently well this quarter. Our guidance for operating margins was 26 percent for the full year and we are ending it at 25.8 percent inspite of this being a soft quarter for us."
The IT giant's consolidated FY'13 net profit rose by 13.3 to Rs 9,421 crore on the back of 19.6 percent rise in revenues at Rs 40,352 crore.
The company has decided to set aside up to USD 100 million to invest in products, platforms and solutions ideas in line with Infosys 3.0 strategy.
Commenting on Infosys numbers, Barclays Head of India Research Bhuvnesh Singh told PTI "Over the past 10 quarters, this stock has now seen a decline of more than 5 percent on results days 6 times and a decline of more than 8 percent 4 times."
The company stopped providing quarterly guidance post October 2012 and has now stopped providing annual EPS guidance, he added.
"FY'14 revenue growth guidance is 6-10 percent. However, with the spotty record of the past three years, our confidence in their guidance and visibility remains low," he said.
On discontinuing the practice of giving annual EPS guidance, Infosys CFO Rajiv Bansal said: "Considering that we need to make a lot of investments as we go along and also the kind of volatility that we are seeing in the market place, we have discontinued the practise of giving EPS guidance."
In terms of US dollars, the company reported a net profit of USD 444 million in the fourth quarter and revenues of USD 1.938 billion. For the entire 2012-13 fiscal, its net profit stood at USD 1.725 billion and revenues were at USD 7.398 billion.
In October last year, Infosys while giving its revenue guidance for the 2012-13 fiscal had pegged its revenues at USD 7.343 billion.
Considered its IT industry bellwether status, Infosys has been struggling to meet its forecast in the last few quarters, experts said.
Following Infosys' lower-than-expected performance and guidance, the results of the other top IT firms will be closely watched. TCS, India's largest software services exporter, will announce fourth quarter results on April 17, followed by HCL Technologies (April 17) and Wipro (April 19).
On client additions, Shibulal said "Our clients additions in Q4 have been very good. We added 56 more clients in Q4. Our total number of million dollar have gone up to 448."
However, the Infosys CEO and MD admitted that pricing is under pressure. "Our pipeline is robust. When I look at the future, I see that environment will be volatile and challenging. The pricing continues to be under pressure because of the focus on costs by our clients."
Shibulal added that the company's hedging strategy helps it to minimise impact of volatile markets and currency.
"The global currency market continues to be volatile reflecting the uncertain economic environment. Our hedging strategy helps us to minimise the volatility impact. We have a healthy balance sheet with our cash and cash equivalents at USD 4.4 billion," he added.
During the quarter, Infosys added 8,990 (gross) and 1,059 (net) employees taking its total headcount to 1,56,688.