Infosys Technologies on Friday said it is expecting margins to shrink by close to 300 basis points (bps) next fiscal on account of low utilisation, rupee appreciation and wage inflation. The company, which saw its margins shrink by 100 bps in the last quarter of FY11, is projecting a 400 bps drop for the first quarter of FY12, the company?s chief financial officer said.
?The rupee depreciated in the fourth quarter, which was positive for us, but utilisation was the main impact. Next year?s revenue growth guidance is at 18 to 20% in dollar terms, but we are adding 45,000 people and starting the year with low utilisation. We want to build capacity because we are seeing a good growth environment. Rupee appreciation and wage inflation will also reflect in margins,? V Balakrishnan, chief financial officer, Infosys, said to FE. In Q4 FY11, Infosys made a gross addition of 8,900 people, exceeding its quarterly hiring guidance of 6,000. The impact of this addition on utilisation, which came down to 75.2% from 77.1% year-on-year, resulted in the margin dip. The addition of 45,000 employees over the year in FY12 will further bring down utilisation, impacting margins by 100 bps.
While the rupee has been favorable in Q4 FY11, a likely appreciation of 2%, assuming rupee at Rs 44.50, will impact margins by another 100 BPS. Wage hikes, at 10 to 12,% in India and 2 to 3% outside will account for remaining 100 bps dip. In the first quarter of the fiscal, wage inflation will account for 300 bps of the reduction, which will normalise over the year. While Infosys? dollar revenue guidance was in line with the Street expectations, an EPS guidance of Rs 126.05 to Rs 128.21 disappointed markets, with the average EPS guidance expectation having been pegged at closer to Rs 150.
However, markets are not convinced with Infosys?s guidance, which is typically conservative, and expect actual figures to be brighter. Sanjeev Hota, senior research analyst, Sharekhan, said, ?Of the 300 bps guidance, the market is expecting Infosys to be able to recover 120 bps. We are pegging actual dip at 180 bps, as Infosys should be able to absorb the impact of wage hikes. This will reflect on the EPS, which we are seeing at Rs 140.? Infosys had earlier guided 300 bps drop in margins for 2010?11, which eventually came down to 100 bps. Markets are expecting a similar performance to happen as well.
Reflecting the disappointment in Infosys? results, the company?s stock price took a beating on Friday, dropping by a steep 9.59% on the BSE to close at Rs 2988.80.