The unexpected exit of Mr T. V. Mohandas Pai from Infosys Technologies may have eclipsed the Q4 results announcement of the company but the poor performance certainly did not go unnoticed. The market beat down the stock by 9.59 per cent to Rs 2,988.80 in Friday's trading on the BSE.
The Infosys ADR listed at the Nasdaq tumbled 13.44 per cent or $9.81 to trade at $63.2 at 9.00 pm IST. During the day, it touched a low of $62.87.
In the fourth quarter ended March 31, 2011, Infosys posted a 2.1 per cent sequential (quarter on quarter or QoQ) growth in net profit at Rs 1,818 crore, while revenues grew 2 per cent to Rs 7,250 crore. The net profit rose 17.1 per cent year-on-year (not counting the Rs 48 crore the company realised from its sale of OnMobile shares the previous year), while revenues grew 22 per cent. For the fiscal year 2010-11, revenues grew 20.9 per cent to Rs 27,501 crore and net profit rose 9.7 per cent to Rs 6,823 crore. While the numbers are in line with Infosys' year-on-year growth guidance, the street had expected the company to outperform its guidance on the back of an improved demand environment.
The earnings per share was Rs 31.82 for Q4. Other income saw sequential growth of 43 per cent — if this had not happened, Infosys could have seen a dip in net profit. Sequentially, gross profits were down at Rs 3016 crore from Rs 3043 crore.
Defending Infosys' performance, Mr S. Gopalakrishnan, CEO and Managing Director, said: “Q4 is generally a soft quarter and there were some delays in project starts. The momentum has to pick up and things should end better. Clients have finalised budgets and they look positive.”
According to broking house CLSA, Infosys' March quarter report is “extremely poor, missing the most pessimistic expectations.”
“Just a 1.1 per cent QoQ growth in dollar revenues is a big disappointment even in a seasonally weak quarter. Importantly, a 1.4 per cent QoQ volume decline indicates a lack of business momentum. Somewhere, the order flow bullishness from the sector has been lost in translation when we compare Infosys numbers to what could have been, or what we reasonably expect from its larger peer TCS.”
Guidance for next quarter
In its guidance for the first quarter next year, Infosys expects revenues to be in the range of Rs 7,311-7,382 crore, at a y-on-y growth of 18-19.1 per cent. The EPS is expected to be Rs 27.59-28.02, at a YoY growth of 5.9-7.5 per cent.
For the fiscal ending March 31, 2012, revenues are expected to grow 15.4-17.3 per cent to Rs 31,727-32,270 crore. EPS is expected to grow 5.5-7.3 per cent YoY to Rs 126.05-128.21.
"The guidance suggests Infosys has had to alter its much-vaunted high-margin strategy to win business. This coupled with the impending organisational changes indicates that Infosys is likely to remain in flux in the near to medium term," said the CLSA analysis.
In the quarter ended March 2011 (Q4), revenues from North America declined by 0.5 per cent sequentially, while Europe grew by 2.4 per cent. Emerging markets, including India, showed a rise. Among the service offerings, the Consulting arm's Q4 net was down 93 per cent y-o-y and annual net was down 24 per cent.
Infosys 2.0
There was a gross addition of 8,930 employees (net 3,041) in Q4. For 2011-12, Infosys will hire 45,000 people, compared to the 43,000 hires for the last year.
Looking ahead, Infosys says it would focus on building strategic relationships with clients and adding value. “Infosys 1.0 was about establishing a global delivery model. Infosys 2.0 was about creating a portfolio of end-to-end services. The third phase is about investing in the future — on transformational services and Infosys 2.0 was about creating a portfolio of end-to-end services,” said Mr Gopalakrishnan.
The company board has recommended a final dividend of Rs 20 per share for fiscal 2011. The company's board will meet on April 30 to finalise the successor to Mr N. R. Narayana Murthy, who retires as Chairman of the board in August 2011.