Flat profit growth and muted guidance combine to trip the stock

For the second consecutive year, Infosys Technologies missed its annual revenue guidance. This, and the muted guidance for 2013-14, sent its shares plunging by over 20 per cent.

The country's second-largest IT services exporter announced, on Friday, that its revenue growth forecast for 2013-14 would be 6 to 10 per cent. This “safe guidance” is significantly lower than the industry average of between 12 and 14 per cent projected by NASSCOM. Despite an encouraging third quarter, Infosys missed its full-year revenue guidance by 0.97 per cent in rupee terms and 0.6 per cent in dollar terms. The company has cited the volatile business environment for desisting from giving a guidance on its margins. The company registered a net profit of Rs. 2, 394 crore, up by 3.4 per cent over the previous year. Infosys reported revenues of Rs. 40,352 crore for 2012-13, up by 19.6 per cent compared to the previous financial year. Its revenues in the quarter ended March 31 amounted to Rs. 10,454 crore, up by 18.1 per cent compared to the corresponding period in 2011-12. On a sequential basis, revenues grew by a mere 0.3 per cent.

S.D. Shibulal, CEO and Managing Director, told reporters that the performance was a “reflection of the extreme volatility in the market.”

“The environment continues to be volatile. There are mixed signals coming from abroad. We cannot escape this,” he said.

Rajiv Bansal, Chief Financial Officer, said that Infosys’ hedging strategies had helped minimise the impact of this volatility.

Mr. Shibulal also said that the visa situation was another source of uncertainty for the company, where, owing to over-subscriptions (and the lottery system), Infosys might have to resort to more on-site recruitments and sub-contracting, which could drive up costs and adversely affect margins.

Despite going through a “soft quarter”, he reiterated that interactions with clients “have reassured (us) that client confidence in the company is rock-solid.”

Cost pressure all around

“But, there is cost pressure all around. And, our survey with clients has shown that cost will continue to be a major concern going ahead,” he said. He added the $350 million Lodestone acquisition in September had also impacted margins.

Infosys also announced that it would invest $100 million in products, platforms and solutions ideas in line with its 3.0 strategy. This was part of a series of decisions that the company had taken to increase its efforts in innovation, Mr. Shibulal said. The company added 56 new clients during the previous quarter.

Slowdown in hiring

Infosys, across its subsidiaries, added 8,990 employees to its workforce in the quarter ending March 31. Net additions during this period amounted to 1,059. This is significantly lower than its hiring activity in the same period in previous years.

At least 10,000 recruits, who were hired from campuses in 2012, had been given delayed joining dates, Infosys said. The company employed 1,56,688 people as of March 31.

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