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Infosys marks up guidance

Special Correspondent
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Revenue grows 32 per cent; visa-related provision pulls down profit

Aided by the sharp depreciation of the rupee, IT services major Infosys, on Friday, reported revenues of Rs.12,965 crore in the second quarter ended September 30, 2013, against Rs.9,858 crore in the year-ago period, an increase of 31.5 per cent. However, the company’s travails with the visa regime in its main market, the United States, forced it to set aside $35 million (Rs.219 crore) during the quarter. The net profit edged up by 1.6 per cent to Rs.2,407 crore from Rs.2,369 crore.. In dollar terms, revenues were up 15 per cent at $2.066 billion against $1.797 billion. However, the net profit declined by 11.1 per cent to $383 million from $431 million in the year-ago period.

Reading from a prepared text, Chief Executive Officer S. D. Shibulal said the company was “in discussions” with the U.S. Attorney’s office and with other agencies for “a civil resolution of the government’s investigation into the company’s compliance with Form I-9 requirements and past use of B-1 visas.” The I-9 Form is used to ensure that employers “verify” employees’ identity and eligibility to work in the U.S.

Mr. Shibulal told The Hindu that based on the company’s understanding of the “ongoing discussions,” the company had set aside $35 million. Parrying all further questions on the issue, he refused to divulge whether the amount included provisions for any fines that may have to be paid for alleged violations of U.S. visa regulations. However, he said the amount included “legal costs” that Infosys was incurring. He refused to answer if the company might need to make any further provisions to extricate itself from the legal tangle it was in. On a more positive note, the company’s revenue guidance for the full year improved over its earlier forecast.

It now expects dollar-denominated revenues in 2013-14 to grow 9-10 per cent, compared to the earlier forecast of 6-10 per cent (9.9-10.7 per cent in constant currency terms). Mr. Shibulal said the fact that Infosys’ last two quarters were “traditionally soft has been factored into the guidance.” He said the “shutdown” in the U.S. Federal Government and the expected slackening of retail consumer demand in the U.S. had also gone into the determination of the forecast. However, Infosys’ revised guidance is still lower than the industry revenue estimate of 12-14 per cent forecast by National Association of Software and Services Companies (Nasscom).

Terming the performance in the second quarter “fairly good,” Mr. Shibulal said revenue growth was “predominantly” driven by offshore volume growth of 4.3 per cent over the previous quarter. He said pricing was fairly robust, improving by 0.9 per cent (in constant currency terms). He said Infosys’ average growth in the last four quarters had been 3.6 per cent. Operating margins declined by 160 basis points — from 23.5 per cent to 21.9 per cent. Mr. Shibulal admitted that the decline was mainly on account of the provision Infosys had to make for the visa imbroglio it was caught in.

On a gross basis, Infosys added 12,000 persons to its workforce; on a net basis there were 3,000 additions. On a net basis, the company added 37 clients during the quarter. Referring to the 230 basis point increase in attrition since the comparable quarter last year, Mr. Shibulal said the issue “is of concern, but there have been across-the-board increases in compensation.”

Mr. Shibulal cautioned that despite the growth in the last few quarters, it was too early to sight a “secular trend” in improved performance. He said the “internal changes” initiated at the company to ensure sustainable growth would take some more time to kick in.

Stock surges over 7 %

Shares of the company on Friday surged after the company revised its dollar revenue guidance upwards to 9-10 per cent for 2013-14. After making a strong opening, shares of Infosys further jumped 7.54 per cent to Rs.3,360, its 52-week high on the BSE. On the NSE, the scrip gained 6.72 per cent to touch its one-year high of Rs.3,338.

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