India’s second-largest IT firm Infosys posted a net profit of $498 million for the March quarter, down 4.6% sequentially and missing Street estimates as cross-currency movements hurt pricing though volumes inched up marginally. The IT major’s showing has mirrored the weak fourth-quarter earnings set by peers TCS and Wipro. Infosys has missed its annual revenue growth projection too for FY15 with dollar revenues increasing only by 5.6% against its guidance of 7-9%.

However, Infosys has forecast a 10-12% revenue growth for FY16, saying it was well placed for healthy overall growth. It also made public its $120-million acquisition of US based digital experience solutions firm, Kallidus, while also declaring a 1:1 bonus issue of equity shares, its second such bonus issue since October. Infosys’ shares lost 5.95% to close at Rs 1996.25 apiece on the BSE on Friday, following the tepid earnings.

HSBC Securities said in a report that the revenue decline of 2.6% during the quarter and the capital allocation strategy both disappointed, while the FY16 guidance was a bit lower than its expectations. The positives included a reduction in annualised attrition to 18.3% from 21.3% sequentially and the headcount addition of 6,500, which was highest in the past 14 quarters. The consistent decline in pricing was a worry, it said.

Infosys CEO Vishal Sikka was keen to provide his vision for year 2020, despite the current gloomy scenario. “The model that we wish to achieve is this: $20 billion in revenue by 2020, a 30% operating margin and an $80,000 revenue per employee ratio. Currently we are at approximately $52,300 dollars per employee revenue. To increase this so significantly over the course of the next six years is something that would be, I believe, necessary for a next-generation services company.” Analysts, however, said it was too early to factor in the long-term guidance given by Sikka.

Volumes for the Bengaluru-based software exporter grew 0.9% sequentially though pricing eroded by 3.8%. The cross-currency impact on margins was 70 basis points. While consolidated net profit in the March quarter declined 4.6% sequentially from $522 million, Infosys reported a year-on-year increase of 2.3% as against $487 million last year.

Revenue for the quarter was at $2.15 billion, a sequential decline of 2.6% from $2.21 billion. “This miss was led by telecom and energy, almost in line with TCS; however, the miss is much bigger,” said HSBC. “Infosys FY16 growth guidance of 6.2-8.2% (in constant currency terms 10-12%), a tad weaker than our expectations. Already top end of the guidance is looking challenging as 2H is seasonally weaker. Management expects 2H to be stronger going forward due to change in technology spending patterns, but we have heard that earlier as well,” it said.

“We see a dramatic shift unfolding not only in front of us but in the entire industry. You see that in the numbers of everyone. And we see that accelerating, not slowing down. Therefore, the strategy that we have talked about, of bringing automation and artificial intelligence in a massive way to our existing services so that they can be differentiated and they can bring value to clients, is an absolutely necessary step,” Sikka said, adding that the direction that the company has laid out is working. “You don’t see that yet in the numbers but you will see that as well. That is why we are confident we will do 10-12% constant currency growth this year,” he said.

TCS, India’s largest IT exporter, had missed Street expectations with fourth-quarter dollar revenue declining 0.8% sequentially while Wipro’s IT services revenue for the quarter had declined sequentially by 1.2%.

Sikka, who took over the top job at Infosys eight months ago, while laying out his new target of reaching $20 billion in revenue by 2020, said at least $1.5 billion would come from acquisitions that the firm would make in new areas and around $2 billion from new services. This would require the remaining business segments to clock a growth rate of 13-14% year-on-year, he added, besides augmenting productivity of employees with software.

Sandra Notardonato, research VP & invest analyst, Gartner, remarked, “It would probably take 18-24 months before one really starts to see the benefits of the direction Sikka is taking at Infosys. He wants to decouple from revenue growth from IT versus revenue growth from people. That will require investments in R&D. It will take time.”

Infosys’ chief operating officer UB Pravin Rao said services growth in the fourth quarter was lower than expected, though the Finacle and Edge suite did well. “Pricing continues to be under pressure due to increasing commoditisation in the traditional outsourcing business, requiring us to ramp up productivity through automation, and enhance our differentiation in large engagements,” he said.

In rupee terms, Infosys’ net profit for the March quarter grew 3.5% year-on-year to Rs 3,097 crore compared with Rs 2,992 crore, while it declined by 4.7% sequentially from Rs 3,250 crore. Revenue grew 4.2% to Rs 13,411 crore in the March quarter from Rs 12,875 crore in the corresponding period a year ago. Sequentially, revenue declined by 2.8% from Rs 13,796 crore.

“We were able to improve profitability during the year even as we made investments into our employees and other strategic areas. We have been able to achieve this because of increased operating efficiencies despite a difficult pricing environment,” said Rajiv Bansal, CFO. Besides, it hiked its annual dividend payout ratio to 50% of post-tax profits from 40% earlier. The management said the two bonus issues in quick succession were aimed at increasing the shareholder base and making the stock more liquid.

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