Infosys beats Street, ups FY14 revenue guidance

Written by fe Bureau | Bangalore | Updated: Oct 12 2013, 10:19am hrs
Despite an 8% increase in its wage bill, Infosys on Friday beat the Street with revenues growing 3.8% to $2.06 billion sequentially in the three months to September. Both onsite and offshore realisations improved sequentially while volumes were up 3.1% quarteron-quarter (q-o-q).

With the management upping its dollar revenue guidance for FY14 to 9-10% from the earlier 6-10%, the stock soared 7.55% in intra-day trades before closing at 4.8% higher, over Thursdays closing, at R3273.90. This is the highest closing for the stock since April 2011. Commenting on the revised guidance, Morgan Stanly observed that Infosysdollar revenue guidance now implies -0.8% to -2% q-o-q in 2H and could be revised up marginally in 2H. The brokerage expects the IT firm to achieve 15-20% year-on-year (y-o-y) dollar revenue growth in FY15.

The IT major reported a net profit of $383 million, down 8.4%, sequentially, but analysts were satisfied with the numbers. Morgan Stanley pointed out in a report that operating cash flows had improved to 123% of Ebit one of the highest in recent years.

Infosys adjusted margins were flat sequentially, at 23.6% (excluding visa-related provisions of $35 million), in line with expectations; while the tech heavyweight lost 300 bps on account of the wage hike, it gained 240 basis points from the weaker rupee. While analysts have been looking for better margins this has not happened despite significant currency benefits and better utilisation the management believes that they will begin to trend up once growth is stronger. The rupee has depreciated by more than 40% in the last two years.

Despite several senior-level exits over the past year, the Infosys management brushed aside worries on that count, asserting it had adequate management bandwith. The management, however, remained cautious on the financials in the near term, even after raising the revenue guidance, both in rupee and dollar terms. Infosys CEO and managing director SD Shibulal said,We remain cautious as we have seen volatility in the last eight quarters. It is not a secular trend yet. Two quarters are not a secular trend.

Infosys won five large outsourcing deals during Q2FY14 with a total value of $450 million; with this, it bagged over$1billion of big outsourcing deals in 1HFY14.

The management indicated that the demand environment has improved both in the US and in Europe. In its guidance, Infosys has pencilled in a seasonally soft 2H given the larger number of holidays. It has also built in some degree of weakness in the retail space as also concerns around any potential impact of the shutdown in the US.

The company has observed that while the deal pipeline remains steady, closures might slow down slightly in the second half of FY14. The big boost for Infosys during Q2FY14 came from its utilisation rate, which stood at 77.8%, excluding the trainees as against 73.3% a year ago.

Infosys ended the quarter with 1,60,227 employees, with a net addition of 2,964 against just 575 in the previous quarter. The attrition rate was, however, marginally higher at 17.3% against 16.9% in the last quarter. Except for the India market, all the other geographies logged in positive growth. North America, the largest contributor to its revenues grew by 3.9%, while Europe rose by 5.2%. Infosys manufacturing vertical grew 6.8% sequentially, followed by energy, utilities, communications & services (ECS) at 4.7%. The IT major's largest contributor financial services grew by 2.9%, which was a shade lower than the company's overall growth. The earnings per share (EPS) for the period stood at Rs 42.12, including the provision of Rs 219 crore for the visas.