Infosys beat Street expectations to record a 25 per cent increase in net profit at ₹2,992 crore for the fourth quarter of fiscal year 2013-14.

But the IT services firm dampened investor expectations stating that it would grow at a slower pace in 2014-15.

The company said it expects to see 7-9 per cent growth in dollar revenues in FY15 and 5.6 -7.6 per cent growth in rupee terms. This is well below Nasscom’s estimate of 13– 15 per cent for software exports in dollar terms.

Analysts believe that the lower projections give Infosys a chance to outperform its guidance during the current year.

The Infosys stock reacted positively, rising 3 per cent soon after the results were announced before settling at ₹3,260.45, about 0.76 per cent higher than the previous close.

Revenue growth

Infosys’ revenues for the fourth quarter grew 23.2 per cent to ₹12,875 crore on a year-on-year basis. On a sequential basis, net profit grew 4.1 per cent but revenues declined 1.2 per cent. The operating margin was at 25.48 per cent, about 47 basis points higher than the previous quarter.

For the full year, the company crossed the ₹50,000-crore revenue mark, posting a 24.2 per cent increase year-on-year while net profit increased 13 per cent to ₹10,648 crore. Earnings per share for the full year rose 13 per cent to ₹186.35.

Deal pipeline

Infosys officials said that though the company’s deal pipeline was better than last year, there have been project cancellations and ramp-downs in some deals. “The performance in the last quarter has been disappointing though we have been able to double our growth rate in FY14,” said SD Shibulal, CEO and Managing Director.

The company also said that it has decided to increase the dividend payout ratio to up to 40 per cent from this fiscal year compared with up to 30 per cent of post-tax profits earlier. The decision to increase the payout is because the company’s huge cash pile of about ₹30,000 crore isn’t earning enough money compared with the kind of money it makes from its core business.

Infosys said that it added 50 clients during the quarter and 238 during the year, including Volvo Cars. However, there was a decline in the annual run rate of high-value clients, with two customers dipping below in the $100-million category and one in the $200-million category during the quarter.

Higher attrition

Attrition levels continue to be a cause of concern for Infosys, with the company recording its highest attrition of 18.7 per cent. But Ambarish Baliga, an analyst with Edelweiss Financial Services, said the increase in attrition levels could be because of the company’s move to reduce flab. On a gross basis, Infosys and its subsidiaries added 10,997 employees during the quarter and 39,985 during the year. Currently, the company has 160,000 employees.

Infosys also said that it would hike wages by 1-2 per cent for onsite employees and 5-6 per cent during the year. The last time it hiked wages was nine months ago, by 6-8 per cent.

While Shibulal said the hikes are some of the sops being given out to contain attrition, the Edelweiss analyst said it could eat into the profit margin.

Shibulal, who is expected to exit the company ahead of his superannuation, said he was happy that he will leave behind a company that is much stronger than it was. He said with the board hunting for a new CEO, it was “the right time to leave”.

(This article was published on April 15, 2014)
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