Infosys Q4 FY13 and FY14 guidance continues to disappoint

Guidance fails to meet even the lower guidance of industry growth estimate

India's second largest IT services provider Infosys' quarter numbers have started to resemble the currency markets, one quarter they light up the street and the stock, and the next quarter dampen the hopes of investors.

The Bangalore-based IT firm's fourth quarter not only reported a weak topline growth and continued pressure on operating profits, but the annual guidance for FY14 of 6-10% reflected the problems that seems to be more company related than the macro environment.

This, after a better third quarter results that led analyst to believe that the company is back on growth track. The poor outlook for FY14 reflected on the company's share price that was down almost 17%.

The company's guidance of 6-10% was lower than industry body Nasscom's estimate of 12-14%. It seems that Infosys is finding it difficult to meet even the lower end of the industry growth rate.

The 6-10% guidance pales in front of peer and competitor Cognizant, which has guided for atleast 17% growth (though this is lower than CY2012). The guidance also fails to counter some of the growth that players like Accenture have seen. For the second quarter, Accenture saw a growth of 9% in its outsourcing business to $3.3 billion, here it competes directly with the Indian IT players. Though its consultancy business declined by 1%.

For the fourth quarter ended March 31, 2013, Infosys reported a net profit of Rs 2,394 crore up 3.4% year-on-year and up just 1% on a sequential basis.

Revenue for the quarter at Rs 10,454 crore was up 18.1% on a year-on-year basis, but on sequential basis grew just about 0.3% or was flat. The topline numbers looked disappointing also because it reflects the Lodestone acquisition. This also highlights the fact that the company is still facing challenges to grow its business organically.

The company continued to put the blame of a yet again poor performance to global business environment.

“Global economic uncertainties remain challenging for the IT industry. We are progressing well on our strategic direction of building a high-quality company which is relevant to our clients. We are making all the investments necessary to differentiate ourselves in the market place while positioning ourselves as a partner of choice for our clients,” said S D Shibulal, CEO and Managing Director.

This when peers such as Tata Consultancy Services (TCS) and HCL Technologies along with analyst firms have maintained that year 2013 will be better than 2012 in terms of IT budget.

For the full year, the company reported revenue of Rs 40,352 crore up 19.6% compared to Rs 33,734 crore in the last year. Net profit was up 13.3% at Rs 9,421 crore as compared to Rs 8,316 crore in last fiscal.

In terms of dollar numbers, Infosys net profit for the quarter came in at $444 million, down 4.1% from $463 million on a quarter on quarter basis, on a year-on-year basis it was up 2.3%. Revenue for the quarter was at $1,938 million, up 9.4% sequentially and 1.4% year-on-year basis.

Numbers were disappointing on the operating profit level too. Infosys reported operating profits of 23.5%.

“The global currency market continues to be volatile reflecting the uncertain economic environment. Our hedging strategy helps us to minimize the volatility impact. We have a healthy balance sheet with our cash and cash equivalents at $4.4 billion,” said Rajiv Bansal, Chief Financial Officer.

In terms of geography growth, India was the star performer with 10% growth but North America grew by 0.1%, while Europe held on a grew at 5.7% sequentially. Rest of the world declined 1.5%. Banking finance and insurance grew by 2.3% sequentially, manufacturing grew 3.8%.

Infosys that had a gross addition of 8,990 employees during the quarter, net employee addition of 1,059, continued to see attrition rise. The company had attrition of 16.3% for the quarter, up from 15.1% in last quarter. For the full year attrition was much higher at 16.3%, compared to 14.7% in FY13.