Analysts wrong footed by Infosys earnings…yet again

Moneycontrol Bureau

Predicting Infosys' earnings is turning out to be a tricky affair for analysts tracking the IT sector. Wrong footed by the company's tepid performance in the first two quarters of FY13, analysts were cautious in their forecast for the quarter ended December, thinking that the company's poor run was likely to continue.

The company had stopped guiding on a quarterly basis from the start of FY13 citing volatile global business environment as the reason.

For the quarter ended December, analysts were conservative in their forecast thinking that the company’s poor run of earnings would continue. But the company surprised the market by reporting numbers way above expectations. The stock price rallied 16 percent, and there was a flood of earnings upgrades as analysts bet the worst was behind.

The company’s willingness to be flexible on pricing, a departure from the earlier policy of focusing on margins and not volumes, would drive up volumes significantly, said upbeat analyst reports.

But that optimism may have turned out to be misplaced, as the fourth quarter numbers showed, where revenues and operating margins were below estimates.

More shocking has been the 6-10 percent revenue guidance for the full year, which is lower than the 12-14 percent growth that industry body Nasscom expects for the sector as a whole.

And now there is likely to be a flurry of downgrades.

For a long time after it adopted the concept of earnings guidance, Infosys would consistently beat its own guidance, triggering big upswings in its stock on result days. This led to a section of the market accusing the company of deliberating under promising and over achieving.

Till April 2003, it was inconceivable that Infosys could ever miss its earnings guidance. The debate was only about the degree of outperformance. So whatever Infosys’s guidance, analysts would mark up their estimates, confident that the company would deliver. But the rude awakening came on April 10, 2003. The company missed estimates, triggering a 26 percent fall in the stock price in a single day.