Analysis: Growth continues to elude Infosys, despite robust deal pipeline

Company guides for a dollar revenue growth of 7-9% in FY15, which is substantially below Nasscom's 13-15% guidance

Infosys expects to grow at a much slower pace in FY15 than the rest of the industry. The company surrendered its leadership position a while ago, but a single digit revenue forecast for FY15 suggests that Narayana Murthy's return too isn't enough. The technology lobby body Nasscom in February said that software exports from India would grow 13-15% in FY15 but the IT sector's bellwether Infosys has guided for 7-9% growth in FY15. In rupee terms, the company expects revenues to grow between 5.6-7.6%, which implies that the company is factoring in some negative translation impact.

Narayana Murthy's return to the company's fold as executive chairman has at best helped iron out the sharp volatility in earnings, which often used to be at variance with the guidance, but growth is still elusive.

The company's CEO D Shibulal has conveyed that deal pipeline remains robust and the company has closed four large deals with a total contract value of $700 million, but decision cycles have lengthened. This again is at variance with Nasscom's commentary.

Despite all optimism, Infosys has exited FY14 with a dollar revenue growth of 11.5% at $8.24 billion. which is along the lines of what the company had guided for towards the end of the quarter. Sequentially, revenue growth has declined by 0.4% to $2.09 billion. In dollar terms, the company's operating profit grew by 1.5% sequentially and net profit was up by 5.2%. Unlike the past, the company has not thrown up any nasty surprise at the end of the quarter which is at variance with its own guidance. This is something that the market is expected to appreciate. Instead of over-delivering, the company has stuck to its promise of under delivery during the fourth quarter.

The company's revenue mix, both in terms of segments and geographies, largely has remained stable. Even though revenues from North America have declined marginally during the fourth quarter on a sequential basis, analysts presume it could be a blip as most other players too have reported weakness from that geography due to harsh weather conditions.

The only positive during the quarter has been the margin expansion. Sequentially operating margins have risen by 50 basis points to 25.5% and the dividend payout ratio has been increased to 40% of post-tax profits.   

Over the last three quarter, tightening costs have directly resulted in better margins, as promised by Narayana Murthy at the company's AGM in August 2013. Going forward. the company expects margins to decline. However, going forward the company will have to improve its growth to at least match that of the industry if not beat it.