Infosys guidance stumps Street

Stock slumps over 12%, biggest single-day fall in nine years firm freezes salary hike for now

Infosys Technologies’ net profit for the quarter ended March 31, 2012, rose a healthy 27.4 per cent over that in the corresponding period the previous year, but the sting was in the tail. India’s second-largest software services exporter disappointed investors with a weaker-than-expected revenue growth outlook for 2012-13, sending its shares plunging 12.6 per cent in its biggest single-day fall in nine years. The tumble wiped off Rs 15,000 crore from the company’s market value.

The results were announced before the market opened, and the stock — once considered a sector trend-setter — slipped eight per cent in opening moves, to Rs 2,518. A combined 10.93 million shares changed hands on the Bombay Stock Exchange and National Stock Exchange.

Infosys, which counts American Express, Bank of America and BP as major global clients, gave a full-year guidance of 8-10 per cent growth in revenues, lower than industry association Nasscom’s projection of 11-14 per cent for 2012-13.

Defending the company’s guidance for the full quarter, Infosys CEO & MD S D Shibulal said it considered the guidance a “statement of facts”, based on the company’s visibility of opportunities on the ground. “Our reality is our client base; our business model; portfolio of services and revenue mix. Before entering the fourth quarter of FY12, we had stated it was going to be a challenging one and, hence, had revised our guidance. Going forward, we have just about 65 per cent visibility of our clients’ spending. So, looking at the present market, we feel our guidance is realistic,” said Shibulal.

Analysts were further stumped when they heard a very cautious commentary from the management that said sudden ‘ramp-downs’ in the last 15 days to a month pulled the firm’s guidance down. This was evident in the 4 per cent decline in the company’s growth in its majority market, the US.

In yet another bad news for everybody, Infosys, which generally announces its annual salary hike in April, chose to withhold it. However, it said the management might revisit the decision in the middle of the year, based on market conditions.

In the quarter ended March 31, Infosys reported a net profit of Rs 2,316 crore, with a year-on-year growth of 27.4 per cent. However, the company failed to meet the revenue guidance for the fourth quarter and full year. At Rs 8,852 crore, the Q4 revenues went up 22.1 per cent over that in the same quarter the previous financial year — but were 5-7 per cent lower than the guidance of Rs 9,391-9,412 crore for the quarter.

For the full year, the company’s net profit rose 21.9 per cent to Rs 8,316 crore, whereas revenues grew 22.7 per cent to Rs 33,734 crore, compared to those in the corresponding quarter the previous financial year. The company also failed to meet the revenue guidance for the full year, as it had projected its revenues to be in the range of Rs 34,273 crore and Rs 34,294 crore. Sequentially (when compared with the trailing quarter), the operating profit declined by 2.4 per cent and revenues fell 4.8 per cent.

The other operating parameters of the company, too, were not encouraging. Its operating income declined 110 bps to 29.8 per cent in the fourth quarter, when compared with 31 per cent reported in the third quarter of 2011-12, primarily because of the depreciating rupee.

“Overall, the results were depressing, with guidance numbers indicating the management was banking on back-ended growth. This makes us cautious, as the second half of every financial year is typically slow. We will scale down our estimates for 2012-13, being cognizant of the effect of disappointing guidance and uncertain macros,” said Ankita Somani of Angel Research.

For the quarter ending June 30, 2012, the company has given a revenue guidance of Rs 9,011 crore to Rs 9,100 crore, with a year-on-year growth of 20.4-21.6 per cent, but a sequential growth of 0-1 per cent. For the financial year ending March 31, 2013, the company has guided its revenues to be in the range of Rs 38,431 crore to Rs 39,136 crore, a YoY growth of 13.9-16 per cent.

The company, however, fears the start of the new projects would be slower in the ‘new normal’, when clients are showing cautiousness in terms of spending. Ashok Vemuri, Infosys’ head for America and global head of manufacturing and engineering services, added there was very little visibility on the deals that had been deferred or put on hold.