Global challenges limit Infy net growth to 3.4% in Q4

Indian IT pecking order set for overhaul as Cognizant narrows gap

The pecking order for the Indian IT services sector is set to change in FY14. With Infosys continuing to report disappointing numbers, Nasdaq-listed Cognizant would, in all probability, displace Infosys as the second-largest IT services company.

The math is simple. Infosys, which finished FY13 with revenue of $7.39 billion, has forecast a growth rate of six-10 per cent for 2013-14. In contrast, Cognizant ended calendar year 2012 with $7.35-billion revenues and expects 17 per cent growth for 2013.

Infosys' expectation is less than that for the sector. Nasscom expects the industry to grow between 12 and 14 per cent in FY14.

"Infosys disappointed on all counts," said Viju George and Amit Sharma of JPMorgan Equity Research in their report.

Other than Infosys' lower-than-expected growth guidance, what took the market by surprise was the absolute unpredictability in growth rates of business. The company was unsure of the revenues or the margins it would clock. The company's stock tumbled 21.3 per cent, to end the day at Rs 2,295 a share. The American Depository Receipts of Infosys fell to $43.72, down 19.60 per cent, at the time of going to press.

For the quarter ended March 31, 2013, Infosys reported net profit of Rs 2,394 crore, up 3.4 per cent year-on-year, and up just one per cent on a sequential basis. Revenue for the quarter stood at Rs 10,454 crore, up 18.1 per cent on a year-on-year basis. But on a sequential basis, it grew just about 0.3 per cent. The top line numbers were disappointing, despite the Lodestone acquisition. This also highlights that the company is still facing growth challenges.

For the full year, the company reported revenue of Rs 40,352 crore, up 19.6 per cent against Rs 33,734 crore last year. Net profit was up 13.3 per cent at Rs 9,421 crore, against Rs 8,316 crore in last financial year.

The management continued to blame the macro environment.

"Global economic uncertainties remain challenging for the IT industry," said S D Shibulal, CEO and managing director, Infosys. "From the margin perspective, we are entering the year with few headwinds. The impact of the compensation we gave last year has not been fully factored in. The Lodestone acquisition charge will be about $30 million for the year, plus the impact of the Lodestone margins will continue to impact us until we create offshore capabilities. We're not sure of the number of visas we will get because of the oversubscription, which will lead to an increase in subcontracting costs."

RESULT SNAPSHOT

• 5.8%
  FY13 $ revenue growth, against forecast of 6.5%
• 6-10%
  FY14 $ revenue growth guidance (at $7.84-8.13 bn)
• Pricing, wage hikes, and visa cost likely to impact margins in FY14
• 1.8%
  FY13 volume q-o-q; 8.8% y-o-y
• 0.7%
  Decline in pricing q-o-q
• 16.3%
  Attrition for FY13, against 14.7% in FY12
• Management commentary cautious as deal ramp-ups not happening