Infosys shrs end down 13% after FY13 guidance shocker

Moneycontrol Bureau

Infosys shares plunged over 13% on Friday to a seven-month low as investors gave big thumbs down to the technology bellwether's much lower-than-expected guidance for fiscal 2013.

The India's second largest software services exporter reported a net profit of Rs 2,316 crore for the January-March quarter, up 27.4% year-on-year, while revenue rose 22.1% from a year ago to Rs 8,852 crore.

Infosys, however, shocked the street when it guided for just 8-10% growth in US dollar revenue in the current fiscal year, significantly lower than the street's expectation of 12-14%. Infosys' forecast is also lower than 11-14% growth projected by industry body NASSCOM, a huge surprise, since the company's results used to be a benchmark till not so long ago.

"The results and the guidance will likely re-fuel fresh debate on not just structural issues with the company but also question the demand for IT services going into next year," said Bhuvnesh Singh and Vaibhav Dhasmana of Barclays Capital.

Infosys on its part warned that the year ahead looks challenging for the IT services industry with slow recovery in the global markets and volatile currencies.

"We are in a new normal, we are operating in a pretty volatile environment... While we are seeing that the budgets are closed and actually are marginally down, the visibility in the spending, the confidence of spending by clients is actually quite low. In financial services, what we are seeing is a zero base budget, which is month to month, so to actually give a guidance in such a complex environment itself is a pretty bold statement to make," said CEO and MD, SD Shibulal.

The street, however, wasn't impressed.

"We are not worried on the structural debate regarding off-shoring - concerns resurface with every weak quarter. The company's performance is volatile and management's ability to predict this performance has become less accurate in the face of poor visibility in the macro environment. We expect this to continue for some time and hence continued pressure on the stock," said the Barclays analysts.

"Accenture, which is significantly larger than Infosys, that came out with a strong quarter, they actually raised guidance for the fiscal year, and Infosys on the other hand, which historically has modeled itself, and they wanted to become India's alternative to Accenture, and we are coming out with these numbers in terms of guidance, that tells us something about their competitive position," Moshe Katri of Cowen & Co told CNBC-TV18.

"Infosys earnings in recent past are getting more and more eventful and price volatile driven by factors - guidance disappointment, management exits and weaker performance than expectations...We believe sustained underperformance versus TCS/Cognizant/HCL Tech suggest weak demand and poor strategy at Infosys driven by management transition, stickiness on pricing premium and margin and operational excellence," said another analyst at a local brokerage.

Meanwhile, NASSCOM itself today told CNBC-TV18, US market was looking relatively stable for member companies and it didn't see any need to revise its growth targets downwards. It may only review its growth guidance after earnings announcements by TCS and Wipro.

Infosys shares on Friday closed at Rs 2,402.55 on NSE, down near 13%.

Nachiket Kelkar
nachiket.kelkar@moneycontrol.com