Infosys: weak all-round

K. Venkatasubramanian BL Research Bureau | Updated on January 23, 2018


Most numbers fall short of peers’

Infosys delivered a set of numbers that places it at the bottom of the top-tier IT peer group for the March quarter.

What was disappointing was the weakness and fall in revenues from all verticals and geographies during the period. Volume (person months billed) growth was mild and pricing took a significant hit. The only positive was the small addition in large-size clients. Even factoring a weak euro that hurt the company, the tepid nature of the numbers may leave investors worried.

While the 10-12 per cent guidance (in dollar terms) for FY16 seems healthy, the caveat is the assumption made on constant currency basis. On a reported basis, the company hopes to grow revenues only by 6.2-8.2 per cent in the current fiscal, still way behind the overall industry.

During the March quarter, Infosys’ revenues fell 2.6 per cent sequentially (in dollar terms), while net profits slipped 4.6 per cent.

For peers TCS, HCL Technologies and Wipro, the revenue fall ranged from nil to 1.2 per cent over the period. Most of these companies had some segments or geographies that bucked the trend, but in the case of Infosys, there was no such respite.

Pricing pressure

During the quarter, volumes rose only 0.9 per cent and realisations fell by 3.8 per cent as a result of pricing pressure from clients.

Infosys’ key verticals such as banking and financial services and manufacturing witnessed a 1.1-1.3 per cent sequential fall in revenues, while the figure was a steep 2.6-6.7 per cent for segments such as retail, energy, utilities & telecom.

There was erosion in revenues from all the geographies, with Europe experiencing a 6.1 per cent fall.

The utilisation rates slipped 4 percentage points during the quarter to 78.6 per cent, the lowest among peers.

The silver line was addition of one client each in the $100 million and $50 million categories. Infosys has also mined its top few clients well, seen from their increased contribution to overall revenues during the quarter.

Weak outlook

For another fiscal, Infosys has underperformed the industry massively (7-8 percentage points), growing revenues at just 5.6 per cent in FY15 in dollar terms.

Also it has exited the year with a tepid set of numbers for the March period and hence bouncing back to its guidance level itself may be quite challenging going ahead. As the management has indicated, it would match the industry levels only from FY17.

The stock took a knock of 6 per cent on Friday, clearly reflecting the concerns around the company. For now, it appears that it would trade at a discount to the valuation multiples commanded by TCS as well as HCL and Wipro as none had such all-round weakness as Infosys. Given the weakness in earnings across IT companies, it may not be surprising if the software pack itself trades at a discount to the markets.

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Published on April 24, 2015
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