Mysore: Mysore: Infosys Ltd sounded a warning about continued uncertainty in actual spending by customers and kept its guidance for the fiscal year unchanged, which sent its shares sliding and affected other technology stocks.
India’s second largest information technology (IT) company announced June quarter earnings on Tuesday, posting a sequential increase in revenue and a drop in net profit. Its operating profitability also declined. All these were in line with expectations, but it was the company’s decision to leave its FY12 revenue guidance unchanged at $7.13-7.25 billion (Rs 31,870-32,408 crore today) that disappointed investors.
Shares of Infosys fell 4.27% to Rs 2,794.25 on BSE on Tuesday, amid a 1.65% decline in the benchmark Sensex. Tata Consultancy Services Ltd fell by 0.78%, while Wipro Ltd was down 1.36%.
Outgoing chief executive officer (CEO) and managing director Kris Gopalakrishnan said clients weren’t cutting IT budgets nor asking for steep cuts in price, but added that they remained uncertain when it came to actually spending money, resulting in delays in decision making. This called for a measure of caution from the firm, he added.
Infosys expects a revenue increase of 3.5-5% in the second quarter and has held on to its earlier guidance of an 18-20% increase for the full fiscal year.
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“But we are bold in our investments,” Gopalakrishnan said. Infosys expects to hire 12,000 people in the second quarter, and 45,000 in FY12.
CEO designate and current chief operating officer S.D. Shibulal said that while clients continue to negotiate price, there is no abnormal trend nor pressure for downward revisions.
The quarter ended 30 June saw a 1.2% increase in pricing in reported currency, he added.
The results are along expected lines, said Amneet Singh, vice-president (global sourcing) at Everest Group.
“The surprising thing is the caution on the outlook, in spite of the success they have had in winning transformational deals,” he said. “Sentiment suggests that the demand is sober. That does not gel with what global IT firms are talking about,” he added.
“The company’s progress on products and platforms, where it has bagged five projects in Q1” was encouraging, said Dipen Shah, senior vice-president at Kotak Securities Ltd.
The IT services company, which has formally dropped “technologies” from its name to reflect an increasing thrust on consulting and business transformation, showed a decline in net profit of 5.3% in rupee terms to Rs 1,722 crore in the June quarter (compared with the March quarter).
It posted an earnings per share of Rs 30.14, down 5.3% from the preceding quarter, but higher than the guidance of Rs 27.59-28.02. In dollar terms, net profit declined 4.5% from the preceding quarter to $384 million. Revenue rose 3.2% to Rs 7,480 crore, above the guided range of Rs 7,311-7,382 crore.
Operating profitability (or margins) declined by around 3.5 percentage points in the quarter compared with a year ago. Wage hikes, currency appreciation and a drop in utilization rates contributed to this, according to chief financial officer V. Balakrishnan.
Shibulal said utilization rates of around 74% were lower than Infosys’ own benchmark of 78-80%, but the continued focus on growth and the fact that once clients do decide to spend, “they want a quick reaction”, calls for higher bench strength, he said.
He added that on-site work grew 6.2%, reflecting the starting of several projects, which would shift to offshore down the line. Offshore work typically has a higher margin. The company expects revenue in the September quarter to be in the range of $1,730-1,750 million.
Earnings per American depositary share was $0.67 for the quarter ended June, a quarter-on-quarter decline of 4.3%, with year-on-year growth at 17.5%.
As many as 26 clients were added in the quarter by Infosys and its subsidiaries. It took on 9,922 workers with a net addition of 2,740, taking the count to 133,560 employees as on 30 June.
Banking, financial services and insurance unit head Ashok Vemuri, based in the US, said business in North America had grown by about 5% during the quarter.
Referring to the controversy over visas used by Infosys’ employees working in the US, Gopalakrishnan said the company was trying to understand the nuances of the B1 visa, and added that he did not know “when it (the controversy) would be behind us.” “If clients have queries, we are answering it to their satisfaction,” he said.
Everest’s Singh said this remained an area of concern: “We also need to keep an eye out on the visa front.”