Infosys reports robust Q3 results, weak guidance

Infosys, the second largest Indian software company, has reported robust Q3 FY12 numbers. The consolidated revenue of the company has jumped by 31% on a YoY basis to Rs 9298 cr, beating its own revenue growth expectations of 24%-26%. The company's net profits grew by 33% to Rs 2372 cr, and the EPS for the quarter stood at Rs 41.51 against the guided EPS of Rs 38.86.

The continued depreciation of the rupee by 11% in the last 3 months has helped the company to report such numbers. However, in its announcement, the company said that since Nov 2011, it has witnessed some tightening in its technology spend, which has come as a worry for investors. The volumes growth of 3.1% was flat, though the company bagged 5 new deals and added 49 new clients as compared to 45 clients in the Sep 2011 quarter - this is also the highest in the last 7 quarters. With the net addition of 3266 employees during the quarter, the total employee count was 145088 as on Dec 31 2011.

Infosys generates more than 70% of its revenues from the US and European markets. If these markets do not improve from the current situation, it will be difficult for the company to sustain the current growth in the forthcoming quarter. Also, the company has revised its growth estimates lower for the ongoing quarter as well as for FY 2012. Infosys CFO, V Balakrishnan, said that they don’t see much improvement in the European region, and it may take longer time for them to recover from the crisis.

Moreover, the company also said that due to the European crisis, the outlook in the coming quarter looks grim, which may impact its business in the US market. Considering the macro issues, it has lowered its revenue guidance for coming quarter and FY12.

In the current quarter (Q4 FY12), Infosys is expecting its INR revenues to be in the range of Rs 9391 cr to Rs 9412 cr, which translates into growth of 29.5% to 29.8%. The growth for the quarter, as estimated by the company, remains flattish. Further, it has cut the US dollar revenue guidance for the year amid concerns over the Euro zone debt crisis, which may lead to a cut in demand. For dollar revenue growth, it is expecting to grow by 16.4% for the year, down from the earlier guidance of 17-19% growth.

The company is expecting the rupee EPS to grow by 32.4% YoY in the Mar 2012 quarter to Rs 42.12, and by 23.2% to Rs 147.13 for the full year. It is also expecting the rupee to be volatile and remain at the same level of Rs 52 by the end of the Mar 2012. Therefore, we believe that a weak rupee will continue to support revenue growth in Q4 as well.

In conclusion, we believe that although the company has reported robust Q3 FY12 numbers, the guidance for the coming quarter and the full year has dampened investor sentiment on the market.