Info-tech

No positive surprises in Infy numbers

K. Venkatasubramanian | Updated on August 09, 2011

bl_12Infosys





There was an odd sense of déjà vu to Infosys' June quarter numbers, with key segments delivering the goods, while pressure points continue to hold back growth.

The North American geography, the relatively low-margin mainstay- application services and the BFSI vertical have all grown during the quarter. However, Europe to a smaller extent and the telecom vertical to a greater degree appear to have faltered.

During the quarter, the company witnessed a 3.2 per cent growth in revenues sequentially to Rs 7,485 crore, while net profit fell by 5.3 per cent to Rs 1722 crore. The markets, which were expecting a couple of percentage points more on both these fronts, were disappointed as lower volumes affected revenues and an 8.1 per cent sequential increase in wage costs dented profits. Profits would have been lower but for a 6.7 per cent rise in other income (Rs 443 crore), consisting mainly of interest from bank deposits.

In terms of operating metrics, significant increase in time and material projects, the first in several quarters comes as bit of a negative surprise. On the positive side, the company improved realisations and lowered attrition.

On expected lines

Revenues from the North American geography grew by 5.1 per cent sequentially, BFSI vertical expanded by 3.3 per cent, while application development and maintenance saw a growth of 4.3 per cent and 5.7 per cent, respectively. But the telecom vertical continued to have weak signals, with revenues from the segment falling over seven per cent. Europe witnessed marginal growth. Significantly, manufacturing and retail verticals continued to witness robust traction, suggesting broad-based customer demand.

Volume (person-months billed) growth for the quarter increased by 4 per cent, while realisations improved by 1.2 per cent, both of which though reasonable, were below expectations.

There is no expectation of any significant improvement in pricing over the next few quarters, though a greater increase in onsite volumes suggests robust business traction ahead. Infosys had a repeat business percentage of over 99 per cent, suggesting optimal client-mining strategies, which has meant that selling and marketing expenses were kept under check.

Increasing T&M

There has an unexpected reversal in the trend of the company reducing focus on time and material projects, which could pressure margins, going forward.

Such projects that provide lower realisations than fixed-price contracts have increased contribution to revenues by a couple of percentage points sequentially to 60.9 per cent.



Utilisation at 74.9 per cent still offers scope for increase, at least to the tune of 3-4 percentage points to take it closer to levels players such as TCS work with.

Attrition, at 15.8 per cent appears to be in control.





Published on July 12, 2011

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

This article is closed for comments.
Please Email the Editor