Infosys: Lackadaisical show in large-client additions

K. Venkatasubramanian BL Research Bureau | Updated on November 17, 2017 Published on October 12, 2012

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Limited cheer from performance indicators

It has almost become a tiresome repetition with Infosys’ results.

Even as the company managed to get its financials back on track, a laggard show in many performance indicators and yet another change in senior management has not helped its cause.

Though volume (person months billed) growth has been reasonable, pressure in pricing, reduction in large-client additions, and a tepid BFSI segment do not present a pretty picture for the coming quarters.

In the September quarter, Infosys witnessed a 2.5 per cent growth in revenues sequentially to Rs 9,858 crore, while profits expanded 3.5 per cent to Rs 2,369 crore. The revenue growth and profits growth in dollar terms were just marginally higher. Net profits were helped by significant exchange gain on forward and options contract to the tune of Rs 373 crore.

Volumes return

Infosys’ 3.8 per cent increase in volumes was one of its better shows in recent quarters and was ahead of expectations. But pricing fell marginally (0.2 per cent) suggesting that clients may still be asking for discounts.

Utilisation too improved by a couple of percentage points to 69.6 per cent.

The worrisome aspect of the quarter’s results is that the company’s only $300-million client has now become a $200-million one.

Also there has been a decline in customers in the $90 million and $100 million categories. Revenue growth from the BFSI vertical was tepid at just 0.6 per cent sequentially.

Clearly, there seems to be pressure in some of the largest segments that the company operates in.

Attrition too has increased marginally to 15 per cent, after declining for the past several quarters. Wage hikes of 6 per cent, which may stem churn, could erode margins for the company.

Its CFO V. Balakrishnan moving out to head other divisions within Infosys surprised the markets as it was widely believed that the present management team was a settled one. Amid the lacklustre show, there were a couple of points to cheer for Infosys during the quarter. Save BFSI, other major verticals such as manufacturing, retail & life sciences and energy, utilities & communications have grown revenues at 2.8-4.1 per cent sequentially, suggesting resilience.

Also, fixed price contracts that ensure higher realisations compared to time and material projects, have increased contribution by a couple of percentage points and now account for 40.4 per cent of the company’s revenues.

Infosys has maintained its full year revenue growth guidance of 5 per cent (in dollar terms), excluding the Lodestone acquisition.

That may a tad conservative. Despite its troubles, the company may well be able to exceed the guidance.

Published on October 12, 2012
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