Expect Infosys to post ~10% USD revenue growth in FY2015: Ankita Somani

Q&A with IT analyst, Angel Broking

Infosys surprised the Street with a 4.1% q-o-q rise in its net profit for the fourth quarter ended March 2014 at Rs 2,992 crore. In conversation with Jinsy Mathew, Ankita Somani, IT analyst, Angel Broking shares her views on Infy's Q4 numbers.

What according to you, are the key takeaways from Q4 numbers?

This quarter was expected to be soft for Infosys due to some unanticipated project ramp downs seen by the company as well as weakness in retail & CPG industry segment. Infosys reported 0.4% qoq USD revenue decline which is inline with our expectations but the company has managed to register ~50 bp qoq expansions in its EBITDA margin and a good 4% qoq net profit growth which is a creditable. Along with these broad numbers, increasing dividend payout to 40% and offshore wage hike of 6-7% are quite comforting takeaways.

The management has given a very cautious guidance. How do you read into it?

Infosys numbers got impacted during the quarter due to sporadic project cancellations and keeping view of that the company has a cautious stance. The company has put out a guidance of 7-9% USD revenue growth for FY2015 which I believe is marginally conservative.

The FY15 dollar revenue growth guidance of 7-9%, is better than analysts’ expectation. Do you see the numbers staking up at the higher end of the band in next quarter?

US is witnessing better GDP growth, improving business sentiment. This ties in with the uptick in discretionary spending from clients in North America especially in BFSI industry. Gradual acceptance to offshore more services from Europe is expected to compound to the revenue traction, pointing to potential uptick in IT budgets. Keeping all this in view, we expect Infosys to post ~10% USD revenue growth in FY2015

The company's growth guidance for FY15 is much lower than Nasscom’s growth rate of 13-15%. Would you see that as a disappointment or a realistic approach?

With the current challenges as well as recent high level exits from the company, I see it as a realistic approach.

Do you see margin expansion continuing in the next quarter?

The company has announced wage hike for offshore as well as onsite employees which is expected to impact margin in the coming quarter. Along with this, management of the company indicated that the company is making constant investments which will impact margins, so we don’t foresee margins going up in the near future.

Should one read much into the increase in attrition rate? Is the current attrition rate a cause for worry?

Attrition rate has become a worrisome thing for the company right now. The company has taken steps such as giving wage hikes, promotions as well as restructure the compensation structure to make it more predictable. But we believe it will take about couple of quarter to come back to a comfortable attrition rate.

Among the IT majors would Infosys still feature among your top three stocks for the long term?

No. Our three top picks in IT sector are: TCS, Wipro and Tech Mahindra

in that case, what is your advice to long term investors on Infosys?

We currently have an Accumulate rating on the stock.

Any picks from midcap IT names?

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