Infosys: Is the magic waning?

The lackluster fourth quarter result gives rise to the concern that Infosys magic might be on the wane. 

The earnings season, which kick-started today with the IT bellwether Infosys announcing its fourth quarter result, however, has begun on a rather disappointing note. The Nasdaq- and NSE-listed Infy has reported net profit of Rs 1,818 crore during the fourth quarter of 2010-11, which was up 17% year-on-year but lower than analysts’ estimate of Rs. 1,856 crore. The March quarter revenue, which grew 22% to Rs. 7,250 crore, too fell well short of the Street’s expectation of Rs. 7,447 crore. Worse, even the EPS guidance of Rs. 126-128 for the FY 2012 is much below than Rs. 145-150, analysts had projected in a poll by CNBC TV-18.

The Bangalore-headquartered Infosys, founded by legendary N. R. Narayana Murthy along with six other entrepreneurs in July 1981, has had a knack for under-promising but outperforming market’s expectations successfully. However, since the last few quarters, the nation’s second largest technology outsourcer has been failing to repeat the same, causing a sense of resentment across the market participants. “A downgrade is most likely to happen,” warned a visibly disappointed Abhishek Shindadkar, analyst at ICICI Securities in Mumbai, in an interview to CNBC TV18. He added, “An EPS of Rs 150 is out of the way now. We will be surprised if Infosys even manages Rs 140 a share.” Several market analysts have expressed similar views which suggest how Infy disappointed a larger section of the market players.  

Another big news that has taken market by surprise is the sudden exit of Mohan Das Pai, the former CFO and a member of the Board of Directors.

Some experts say that Infosys’ tepid performance might signal trouble for the sector. “Based on what Infosys has reported and forecast, people will taper down their earnings estimates for the top players in the sector,” the Economic Times quoted Tejas Doshi of Sushil Finance as saying.

But now a section of analysts say that Infosys is no longer a benchmark for the nearly $60 billion Indian IT sector as they pin hope on behemoth TCS, India’s largest software exporter, and the new IT sensation, Cognizant. Both of these firms had reported better-than-expected results in the preceding quarter.

So let’s wait and watch whether the two can come triumph this time as well or not. Meanwhile, there remain a plethora of challenges before Indian IT sector that includes slow recovery in US and Europe, political unrest in the Middle East, rising wage costs, and above all the currency risks.

Surely, the risks have increased and Indian IT needs to fine-tune its strategies to sustain their growth in a challenging global business environment.

Highlights

• Consolidated results under IFRS for the quarter ended March 31, 2011:
• Revenues were Rs. 7,250 crore for the quarter ended March 31, 2011;
• QoQ growth was 2.0%; YoY growth was 22.0%
• Net profit after tax was Rs.1,818 crore for the quarter ended March 31, 2011;
• QoQ growth was 2.1%; YoY growth was 17.1%*
• Earnings per Share (EPS) was Rs. 31.82 for the quarter ended March 31, 2011;
• QoQ growth was 2.2%; YoY growth was 17.1%*
• 34 clients were added during the quarter by Infosys and its subsidiaries
• Gross addition of 8,930 employees (net addition of 3,041) for the quarter by Infosys and its subsidiaries
• 1,30,820 employees as on March 31, 2011 for Infosys and its subsidiaries
• The Board of Directors recommended a final dividend of `20 per share for fiscal 2011.

* Excluding the income from the sale of our investment in OnMobile Systems, Inc. of `48 crore in fiscal 2010

Source: Infosys

Amy, Chief Editor