Apr 13, 2013 12:30 PM IST | Source:

Infosys Q4 disappoints; downgrades loom on weak guidance

Infosys' fourth quarter net profit rose slightly higher-than-expected 3 percent year-on-year (1 percent quarter-on-quarter) to Rs 2,394 crore, helped by higher other income and lower income tax expenses.

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Infosys shares plunged 21 percent to Friday close at a near-four month low of Rs 2295.45, after its fourth quarter numbers and FY14 guidance were way below  market expectations. This is the biggest single day fall since April 10, 2003, when the stock tanked 26 percent after missing its guidance.

The IT major's fourth quarter net profit rose slightly higher-than-expected 3 percent year-on-year (1 percent quarter-on-quarter) to Rs 2,394 crore, helped by higher other income and lower income tax expenses.

However, its revenue growth of Rs 10,454 crore, up 18 percent YoY (0.3 percent sequentially), was lower than what the street had forecast, sending its shares tumbling over 15 percent in opening trades.

Analysts on average had expected India's second largest software services exporter to report a net profit of Rs 2,297 crore, on revenue of Rs 10,730 crore, according to a CNBC-TV18 poll.

Infosys has guided for a full year revenue growth of 6-10 percent in FY14, which is also much lower than the 12-14 percent growth industry body NASSCOM has forecast. It has not provided earnings per share guidance for the full year.

Considering that Infosys' guidance includes contribution from Lodestone, the Zurich-based management consultancy firm it acquired in Sept 2012, this is a huge disappointment. If one excludes Lodestone, forecast will be even lower.

"Global economic uncertainties remain challenging for the IT industry," SD Shibulal, CEO and MD said in a statement.

But analysts are not enthused.

"...6-10 percent top-line growth guidance for FY14 seems pretty benign and pretty weak and on top of that we did not get the EPS guidance that we were hoping to get," Moshe Katri of Cowen & Co said.

Accenture reported strong numbers for their consulting business and so things seem to be actually going well for the sector, but Infosys on a relative basis is still struggling, he added.

"The business is stabilizing but at this point it is more about how long it will take them until they generate industry like or peer like growth rate," Katri feels.

The company's fourth quarter net profit was boosted by other income, which rose 3 percent YoY (34 percent QoQ) to Rs 674 crore and tax expenses were down 25 percent (9 percent QoQ) to Rs 742 crore.

Infosys' operating profit, in fact, fell 7 percent (8 percent sequentially) to Rs 2,462 crore.

"The global currency market continues to be volatile, reflecting the uncertain economic environment," said Rajiv Bansal, CFO.

Infosys along with subsidiaries added 56 clients in the quarter. It hired 1,059 employees on a net basis in Jan-March and as of March 31 had 1,56,688 employees.

The company, in recent months, has become more flexible in pricing, to get more clients. That surely has reflected on the margin front. Its EBIT (earnings before interest taxes) margin declined to 23.55 percent from 25.68 percent.

At 9:20 hrs, Infosys was trading at Rs 2,434.60 on NSE, down more than 16 percent.

Nachiket Kelkar 

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