Industry watchers are wondering how the company turned around its performance just three weeks after painting a gloomy picture and indicating to the market that growth might come under stress.

For some analysts, the numbers posted by Infosys in the third quarter are still not adding up.

Last week, Infosys reported third quarter business results that took Dalal Street by surprise. It posted flat sequential and year-on-year net profits, revenues of Rs 2,369 crore, a 12.1 per cent year-on-year growth and 5.7 per cent sequential growth to reach Rs 10,424 crore. All of this culminated in a 20 per cent rise in the IT major’s stock two days after results were out.

According to Infosys, this was due to large transformational outsourcing deals and a strong deal pipeline. However, analysts and industry watchers are still wondering how the company turned around its performance in about three weeks after painting a gloomy picture and indicating to the market that the annual five per cent growth might come under stress.

Brokerages such as UBS, Nomura and Barclays on December 7 had said that there was a risk to the company’s organic growth guidance based on conversations with Chief Executive Officer S.D. Shibulal and Chief Financial Officer Rajiv Bansal.

“In the space of three weeks, I am not sure how the company achieved this turnaround,” said a global head of marketing from a rival IT services company. Others echo his concern.

According to Credit Suisse analysts Anantha Narayan and Sagar Rastogi, organisational uncertainties, low growth in outsourcing volumes and its reduced margin guidance for the financial year 2012-13 had prompted them to maintain a ‘neutral’ position on the stock.

However, Shibulal told reporters when the results were out that in early December, due to Hurricane Sandy and the holiday season, the company had expected employee absence for an unspecified duration. Its earlier outlook had been based on this. But “during that period, we worked more closely with our clients and convinced some of them not to shut down their projects entirely,” he said.

Despite this, Infosys’ management maintains a ‘cautious’ outlook for the upcoming quarters as IT spends could be flat or even down this year. “Considering higher dependence on discretionary IT budgets, ongoing business transition within Infosys and an uncertain global economic outlook, expecting a turnaround from this position looks difficult,” said Daljeet Kohli, Head of Research, IndiaNivesh, a brokerage firm.

Others such as Ashish Chopra of Motilal Oswal believe that employee utilisation is still low.

(This article was published on January 15, 2013)
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