Analysis: Lodestone rescues Infosys in Q4

Zero growth in organic revenues despite deal wins in Q3 and revenue addition to the tune of $735 million

Lodestone has possibly come to the rescue of Infosys in the fourth quarter ended March 2013 (Q4FY13). The company’s stunned the market on Friday with another set of bad numbers. In the fourth quarter, Infosys has only added $28 million in fresh revenue, which analysts largely believe has come from Lodestone.

The company disappointed the Street, as it did not give any indication of such poor numbers in the run-up to the Q4 earnings. For FY14, Infosys has guided for a revenue growth of 6-10 per cent, lower than Nasscom’s 12-14 per cent industry growth expectations for the fiscal 2013-14. Negligible volume growth also reflects the complete stagnancy in the company’s operating performance.

 
Margins have also come in significantly lower than the market's estimates. While the Street was estimating margins to contract by 80 basis points (bps), Infosys has reported a 120bps decline in margins to 26.5 per cent. Though the company had conveyed to some analysts that it was willing let margins settle around the mid-20s level, it is now becoming clear that the company is unable to retain or attract clients even at lower levelrs. The company's pricing is under greater pressure than anticipated.

Revenue stream

What is shocking is that despite winning big deals adding up to $960 million in the second half of FY13, the company has not seen any of this flow into the revenue stream in the fourth quarter. This implies that the deals have not been ramped up. While deals could see ramp ups in the first quarter but the management’s misses so far is not likely to inspire any condidence.

The market has suitably punished the company, with its shares slipping 20 per cent in opening moves. It also dragged the benchmark down as the company enjoys the heaviest weight on the Nifty 50. The stock shed over Rs 400 within minutes of the opening bell. Mismanaging the market’s estimates would possibly go down as the biggest failure of the current management of Infosysas quarter after quarter it has mismanaged investor expectations.

For years, founders N Narayana Murthy and Nandan Nilekani delivered earnings that beat most estimates, and at times its own guidance. However, over the last two years, the current management has decimated the company’s reputation. The company has exited FY13 with abysmal numbers, a sequential growth of 1.4 per cent in dollar revenues and 5.8 per cent year-on-year growth for FY13.