Infosys says wage hikes to hurt Q2 margin by up to 300bps

Moneycontrol Bureau

Infosys, which beat street expectations in the first quarter, maintained its FY14 US Dollar revenue growth guidance of 6-10 percent, and said it is trying level best to meet or beat that. However, its margin will get hurt by up to 3 percent in the second quarter, due to the wage hikes effective July, it said in a post earnings press conference on Friday. "This quarter we have done reasonably well. We have been able to keep our operating margins at 23.5 percent, same as last quarter...As we said, we had given wage hikes for people offshore at 8 percent effective July and we also rolled out hikes for other geographies in July. I think, that impact will be visible on operating margins in subsequent quarters. I would roughly expect the impact to be about 300 bps next quarter," Rajiv Bansal, CFO, said. Infosys' first quarter consolidated net profit rose better-than-expected 4 percent year-on-year (1 percent quarter-on-quarter dip) to Rs 2,374 crore, helped by new deal wins. Consolidated revenue in April-June quarter was up 17 percent year-on-year (8 percent sequentially) to Rs 11,267 crore. Volumes were up 4.1 percent. The Bangalore-based once tech bellwether, has struggled to keep up with its rivals like Tata Consultancy Services, HCL Technologies and Cognizant Technology Solutions, as its transitions itself to the new 3.0 strategy. Its 6-10 percent growth guidance is still much lower than the 12-14 percent that the industry body NASSCOM expects for FY14. SD Shibulal, the company's CEO, said that the company faced an uncertain economic environment, changing regulatory regime and volatile currency environment. Discretionary spends by clients remains under stress, he added. However, he is cautiously optimistic on the year ahead as deal pipeline remains strong. "We continue to see momentum in our large deal pipeline. Last year, second half we had closed about USD 1 billion of revenue in large deals, This quarter we have closed 7 deals, few of them more than USD 100 million each. These are deals, which are 3-5 years and revenue gets realised over that period," he said. Infosys shares surged over 14 percent in opening trade as the street cheered its first quarter performance. Analysts were divided earlier whether it will cut its full year Dollar guidance. However, the company leaving it unchanged also came as a relief. "The first quarter has been reasonsably well. But, given all the uncertainties in the environment, especially on the discretionary spending front and the regulatory changes, we felt one quarter is too short a time to go and change the guidance," Bansal said. Barclays analyst Bhuvnesh Singh maintained an "overweight" rating on Infosys, with a target price of Rs 2,750. Run-rate required to meet the upper end of full year guidanceis now 1.5 percent, he said. "Clearly some parts of Infosys new strategy are working, although numbers could remain volatile in the near-term," Singh added. Also Read: Upgrade Infosys to 'equal weight'; mgmt view key, says Envision Capital At 11:25hrs, Infosys shares were at 2,823, up 11.7 percent on NSE. Nachiket Kelkar
nachiket.kelkar@network18online.com