Infosys: Gloomy guidance disappoints markets

K. Venkatasubramanian Updated - November 15, 2017 at 07:39 PM.

Dismal guidance from Infosys seems to have taken precedence over an otherwise healthy set of numbers reported by the company, going by the market's reaction.

On important business indicators such as client additions, and growth in key verticals and geographies, the company has delivered ahead of expectations, especially in a volatile environment. In fact, it has been one of those quarters where Infosys has had well-rounded growth across segments.

For the December quarter, Infosys has reported a sequential rise of 14.8 per cent in revenues to Rs 9,298 crore, while net profits rose 24.4 per cent to Rs 2,372 crore.

This was aided in large measure by the steep depreciation of the rupee. The revenue growth in dollar terms was 3.4 per cent, which is in line with what the company has historically witnessed.

The company delivered a volume (person months billed) growth of 3.1 per cent, accompanied by steady pricing levels, which puts to rest the speculation that clients may ask for discounts.

Broad-based growth

Infosys added one client in the $100-million category and 10 in the $50-90-million bucket. The company has also announced that it has won two large deals of $500 million each, which indicates that there haven't been any significant cutbacks on outsourcing of projects by customers.

The BFSI vertical grew at 3.4 per cent sequentially, while other key segments such as Manufacturing and Retail & Life Sciences grew faster than the company rate at 4.3-4.5 per cent. Application services witnessed steady growth while its infrastructure management offering grew 8.8 per cent sequentially.

The high-margin consulting and system integration services grew at a slow pace, suggesting that there might be caution on customers' discretionary spends.

After a lull, the company has once again ramped up on fixed-price projects, that offer better realisations compared to time and material projects, thus aiding margins.

While the US grew at a modest 0.9 per cent, revenues from Europe grew at 13.7 per cent. This has been possible due to the company's focus on relatively stronger countries in Europe such as the UK, Germany, France and Switzerland.

Disappointing guidance

Despite delivering a positive set of numbers, Infosys upset stakeholders by guiding for a flat March quarter, especially as this period has generally been one of the strongest for IT companies.

Greater clarity may emerge once budgets for the year are finalised by customers over the next few weeks.

It may well be a case of the company being overcautious as there are no lead indicators suggesting a cutback on projects or demand for discounts on pricing.

>ven@thehindu.co.in

Published on January 12, 2012 16:24