Infosys, on Thursday, reported a 32.92 per cent jump in net profit to Rs.2,289 crore for the first quarter ended June 30, 2012. The net profit in the year-ago quarter was Rs.1,722 crore. While the company exceeded its revenue forecast in rupee terms, it failed to meet the dollar revenue guidance of $1,771-1,789 million for the quarter.
Infosys reported revenues of $1.75 billion for the quarter under review, an increase of 4.8 per cent on an annualised basis. Rupee-denominated revenues (Rs.9,616 crore) increased by 28.5 per cent, thanks primarily to sharp decline in rupee against the U.S. dollar in the last quarter.
The first quarter numbers, nevertheless, failed to perk up its share price, which reacted negatively as Infosys cut sharply its dollar revenue guidance amid a volatile global economic environment.
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Infosys shocked markets by halving its revenue guidance for the current year. It had earlier said that it was expecting the dollar-denominated revenues to increase by 8 to 10 per cent during the year. The company now estimates revenues to grow by only about 5 per cent.
“We are seeing an enormous increase in volatility from quarter-to-quarter,” CEO S.D. Shibulal said. “Programmes are getting delayed, and there are delays in decision-making. The excessive volatility has affected the company’s ability to predict the future, which has forced the company to not issue revenue guidance for the current quarter,’’ he added.
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“For the time being, we have taken a decision to give away only yearly guidance of at least 5 per cent growth (for 2012-13) and not have a quarterly guidance,” Mr. Shibulal said. The practice of giving quarterly guidance would resume once economic environment stabilises, he added.
Mr. Shibulal admitted that a combination of factors had affected the company’s performance. The adverse cross-currency movements in the last quarter, and the “pricing issues” posed by “sporadic requests for price renegotiation and discounts” by clients had adversely affected the company, Mr. Shibulal said. The company’s focus on system integration and consulting also exposed it to the uncertainties associated with “discretionary spending,” which are prone to the overall economic environment. He said profitability was also affected by the 1.5 per cent decline in revenues from the relatively more profitable lines of business such as consulting and system integration.
Mr. Shibulal said the “one-time” cancellation of a contract by a European client in the energy and utility space impacted performance. There was also a “ramp down” by a U.K.-based client, he added.
Asked if Infosys’ margins were under pressure, Mr. Shibulal said, “We do not see a secular decline, our pricing is stable at this point.”
“The global environment is challenging, which has affected the confidence of our clients,” Mr. Shibulal said. He said the company was committed to meet its target of hiring 35,000 professionals during the year, of which 9,000 joined the company in the last quarter.
Nasscom guidance ambitious
Infosys Chief Financial Officer V. Balakrishnan, said operating margins declined 190 basis points during the quarter, despite a 4 per cent “benefit” from the decline of the rupee. “But this was more than offset by the pricing decline,” Mr. Balakrishnan said. Margins, he said, were also impacted by onsite recruitment at overseas locations.
Asked if industry lobby National Assoication of Software and Service Companies’ (Nasscom’s) guidance of 11-14 per cent revenue growth in the current year was justified, Mr. Balakrishnan said, “I think the guidance is very ambitious.” “When two large companies in the industry are talking about slower growth, probably the dollar guidance of Nasscom could turn out to be its rupee guidance.” Referring to currency volatility, he said, “The rupee will be under pressure for some time to come.”
As of June 30, 2012, Infosys’ cash and cash-equivalents, including investments in available-for-sale financial assets and certificates of deposit and government bonds, stood at Rs.20,596 crore, as against Rs.16,969 crore as of June 30, 2011.
On acquisitions, Mr. Balakrishnan said the company was “seriously looking” at various options. Infosys, which has Goldman Sachs, BT Group and BP plc among its clients, added 51 new clients during the quarter.
At the end of June 30, 2012, the company had 1.51 lakh employees, including 9,236 (gross) and 1,157 (net) new staff inducted during the first quarter.
Stock tumbles over 8 %
Infosys shares slumped by over 8 per cent on Thursday, shedding Rs.11,548 crore in its market value as investors were dismayed at the company’s sharp cut in dollar revenue forecast for 2012-13 and lower than expected first quarter earnings. With details of earnings outlook emerging, the stock lost further ground and touched the day’s low of 10.14 per cent. The scrip ended the day lower by 8.15 per cent at Rs.2,265.25 on the Bombay Stock Exchange.