Infosys laid low by headwinds

Our Bureau Bengaluru | Updated on January 27, 2018 Published on July 15, 2016



Brings back ESOPs to check attrition, cuts revenue guidance

Stocks of index bellwether Infosys nosedived nearly 9 per cent after the company turned in a disappointing first quarter, the first in four years, resulting in downward revision of its revenue guidance.

Citing possible headwinds from Brexit and visa issues in the US, Infosys cut revenue guidance to 10.5-12 per cent, which is almost similar to the Nasscom guidance for the year but lower than the company’s original guidance of 11.5-13.5 per cent. EBIT margins dipped 138 basis points on a quarter-on-quarter (q-o-q) basis to 24.1 per cent, because of wage hike and visa costs.

To contain rising attrition levels, Infosys said it would roll out its once-popular ESOP scheme from August 1.

The company’s net profit in the June quarter declined to ₹3,436 crore, down 4.47 per cent on a sequential basis. On a year-ago basis, net profit was up 13.4 per cent.

Revenues increased 1.2 per cent to ₹17,535 crore on a sequential basis, below analysts’ expectations. On a year-on-year basis, it rose 16 per cent. “We had unanticipated headwinds in discretionary spending in consulting services and package implementations, as well as slower project ramp-ups in large deals that we won in earlier quarters, resulting in a lower-than-expected growth in this quarter,” said CEO Vishal Sikka. Strikingly, during the previous four quarters, Infosys outperformed India’s top IT outsourcer TCS. But this time, the roles were reversed.

Infosys shares were down 9 per cent to ₹1,070.8, its steepest fall since July 2012.

The IT major saw delayed ramp-ups in one of the large deals won in its healthcare vertical in North America and another one in the financial services segment in Europe. It also witnessed a slowdown in discretionary projects in consulting and system integration work, especially in the life sciences vertical. The company also faced growth slowdown in India, Finacle and flatness in its BPO business, the latter being areas in which it has been struggling in recent quarters.

Analysts wre disappointed with the results, but said this could be a one-off performance. Rikesh Parikh, Vice-President, Markets Strategy & Equities, Motilal Oswal Securities, said that while there are headwinds, the next quarter will determine the extent of impact.

Significantly, the Board said it was bringing back the stock compensation plan by granting 1,857,820 shares to 7,898 high-performing employees. Restricted stock units (RSUs) will vest over four years from the date of grant, and will be exercisable within the period as approved by the committee. Sikka has been granted RSUs worth $2 million, which will vest over four years.

Published on July 15, 2016
This article is closed for comments.
Please Email the Editor