‘The decline in operating margins is a cause for concern’

Spooked by Infosys’ muted guidance for the current fiscal, IT major Infosys saw its shares plunge by 8.59 per cent on the BSE on Thursday. The shares plunged by about 12 per cent but recovered in the second-half before closing at Rs.3357.5. The markets were reacting to Infosys Executive Chairman N. R. Narayana Murthy’s announcement at an investor meet that the company was projected to grow at the lower end of its sales outlook at 11.5 per cent, months after the company had revised its growth guidance from 9-10 per cent to 11.5-12 per cent. TCS stocks also closed 1.16 per cent lower than Wednesday, while Wipro slid by 0.52 per cent.

On Wednesday, Mr. Murthy had spoken about his displeasure with the performance of the company, something he has been reiterating at recent investor meets. “We are not very happy with our performance over the past two years. In FY 2012-13, our growth rate was 5.8 per cent compared to 11 per cent in the Indian software industry. During the current year, we expect it to be around 11.5 per cent, compared to Nasscom’s projection of 13 per cent.” The decline in operating margins was another cause for concern, which had slid from 29.11 per cent in FY 11 to around 23.5 per cent in the current year, he added.

Analysts feel that the markets may have perhaps overreacted or reacted aggressively to Mr. Murthy’s announcement to investors. Senior market analyst A. K. Prabhakar feels that the management merely may have wanted to indicate to investors that they shouldn’t have overtly high expectations, but the market has overreacted to this. “In the past 2.5 years, Infosys has not been able to deliver; but this has been improving since Narayana Murthy’s return. But I am positive on the company as I believe there is a churn, with changes in hiring and approach to business and recent exits.”

Ankita Somani of market research firm Angel Broking said that she preferred to remain cautious on the company in the near-term, mainly because of company-specific issues, including attrition at the top. “There is certainly change at the company, and over the past two quarters it has been showing signs of improving, but the next two quarters will be crucial and to watch out for”.

Keywords: Infosys stocks

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