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Last Updated : Apr 21, 2020 04:25 PM IST | Source: Moneycontrol.com

Infosys Q4 analyst call highlights: Client discussions hint at vendor consolidation, may result in better medium-term show

The company is seeing interest from client in cloud, virtualisation, workforce transformation and cost reduction programs

 
 
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Information technology major Infosys left the Street disappointed with its quarterly earnings on April 20.

The consolidated profit in Q4FY20 dropped 3.1 percent sequentially to Rs 4,321 crore and revenue rose 0.8 percent to Rs 23,267 crore compared to the previous quarter.

Although Infy refrained from providing any revenue or margin guidance for FY21 with the result citing coronavirus-led uncertainty, the company held a conference call with analysts on April 21 to detail the other important aspects of the quarterly results and the road ahead.

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Following are the key highlights of Infosys' earnings conference call as compiled by Narnolia Financial Advisors:

Management Participants: Salil Parekh - CEO & MD, Pravin Rao - COO & Whole-time Director, Nilanjan Roy - CFO

The company won total contract value (TCV) of $1.6 billion in Q4, some of which came in the last few weeks of the quarter despite COVID-19 situation. New deals increased significantly by 56 percent YoY. 12 large deals were won in Q4 out of which 4 came in Retail and Energy, Utility resource and 1 deal each in FS, Communication, Manufacturing and Hitech. Region-wise, the company received 7 deals from America and 5 from Europe.

A significant impact of COVID-19 was experienced by the company in March ($32 million). Two-thirds of the impact came from the supply side and rest was demand-led.

Q4 operating margins were 21.1 percent. The 80 bps decline was mainly attributable to 90bps due to COVID-19 related utilization impact, 40 bps impact of 1H visa (for FY21). The company took a hit of receivable closing account and higher CSR impacting 50 bps. However, rupee depreciation benefitted 50 bps and other 50bps gains came from cost optimization measures.

Attrition on a standalone basis again was higher at 18.2 percent; however, voluntary attrition reduced further to 15.1 percent from 15.6 percent last quarter.

The company had 93 percent of employees working remotely today. Additionally, in order to go smooth, the company added financial security and focus on liquidity of cash. The company started a comprehensive program for cost control and reduction.

Liquidity and financial security top priority: The company will vigorously focus on working capital cycle items including collections, receivable and any other blocked cash.

In order to counter the near-term margin pressure, it will resort to deferring salary hike, lower hiring process and completely freezing discretionary spending.

Financial service is seeing an impact from interest rate decline across the world which has severely compressed the net interest margins. Insurance will see increased pressure due to higher clients.

Retail segment has seen a hard hit and expects to see significant pressure in coming quarters. Deal pipeline is strong but the conversion rate will slow down.

Communication segment: Large deals in this segment have led to stellar performance in the last fiscal. The company expects relatable stable performance from telecom players, Media and entertainment are seeing pressure. Spend on 5G rollout and B2B users of 5G will also get delayed.

Energy Utility resource: With low energy prices and demand & supply chain issues in other sub-segments, the performance is expected to be weak in the near term.

Outlook for FY21

The company is seeing interest from client in cloud, virtualisation, workforce transformation and cost reduction program.

The discussion with clients is reflecting vendor consolidation thus resulting in better performance in the medium term.

However, given the uncertain environment with the global pandemic and client business seeing volatility, the company is suspending its revenue and operating margin guidance for FY21 as it remains unsure of immediate impact.

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First Published on Apr 21, 2020 04:25 pm
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