Infosys Q4 Result Below Expectations

A much-awaited event, the fourth quarter earnings’ season has been kicked off by IT bellwether Infosys that is highly known for its transparent and broadly accepted views and guidance by the market. However, the series has begun on a disappointing note with Infosys presenting weak results. Moreover, it has shocked the investors with its lower guidance for the coming quarter and year ahead.  

Infosys’ shares plummeted by more than 10 per cent after the results were announced. The numbers have disappointed the market in a scenario where investors were expecting it to start the earnings’ season on a positive note. Infosys announced a dollar revenue guidance of 8-10 per cent, which was much lower than industry body NASSCOM’s estimate of 11-14 per cent for the industry.

The consolidated revenue of the company has declined by 4.8 per cent on a QoQ basis to Rs 8,852 crore, lower than the company expectations of Rs 9,391-9,412 crore. Moreover, the net profit of the company too declined by 2.4 per cent to Rs 2,316 crore. The EPS for the quarter stood at Rs 40.54 against the guided EPS of Rs 42.12.

With subdued numbers coming in for Q4FY12 the company has given weak guidance for the June quarter and for the fiscal year 2013. This means a lot for the markets as it indicates a very challenging year ahead for the industry and for the economy.

On the EPS side, Infosys, in the June 2012 quarter, is expecting the rupee EPS to grow by 22.4 per cent on a YoY basis to Rs 36.89. However, this is much lower as compared to Rs 40.54 reported during the March quarter. And for FY13 it is expecting the EPS to be in the range of Rs 158.70- 161.41 with growth of 9.1-10.9 per cent on a YoY basis.

The bigger concern remains the guidance from the company for the fiscal year 2013. It has guided weak revenue growth for the full year FY13, expecting its revenue to be in the range of Rs 38,431 – 39,136 crore the year to grow by 13.9 to 16 per cent on a YoY basis. The weak guidance is amid concerns over a weak and challenging global environment which may lead to a cut in demand. The growth estimated by the company is very sluggish for the June 2012 quarter as the company is expecting the revenues to be in the range of Rs 9,011 crore to Rs 9,100 crore, translating into growth of 20.4 to 21.6 per cent.

Infosys generates more than 70 per cent of its revenues from the US and European markets and uncertainty in these markets continues to loom large for FY13. In a note released by the company, S D Shibulal, CEO and Managing Director, said that the year ahead looks challenging for the IT services’ industry with slow recovery in the global markets, based on which the company has revised and lowered its growth estimates for the ongoing quarter and for the fiscal year 2013. Earlier, in the third December quarter 2011 the company’s CFO, V Balakrishnan, had stated that it don’t see much improvement in the European region and it may take a longer time for them to recover from the crisis.

An uncertain global economy and weak European and US markets led to a volatile quarter for the company. During the quarter the company saw one of the biggest slip-downs due to delays in the contract launches and ramp-downs in a few of BFSI clients. Segment wise, the volume of the company in the financial service segment declined by 4.6 per cent on a QoQ basis – the highest fall among the other business segments. For the other business segments viz. retail, energy and utilities, the volumes fell by 2.9 and 0.3 per cent on a QoQ basis.

The company did not bag any new deals as compared to the last quarter where it acquired five new deals. However, it has added 52 new clients as compared to 49 clients in the December 2011 quarter, also highest in the last eight quarters. The total number of employees with net addition of 4,906 heads during the quarter stood at 149,994 as on March 31 2011. The bleak outlook and the results have dampened the investors’ sentiment on the market. However, we would recommend holding the stock for now.