Slowdown in Infosys hiring not surprising

Infosys Ltd’s shares have barely budged after The Economic Times newspaper reported on Monday that the company is delaying bringing on board some engineers it hired from campuses last year. The company’s shares have fallen by 1% in the past three trading sessions.

Some of these graduates will join as late as July 2013, the news report said. While the news is clearly incrementally negative, analysts aren’t surprised. Infosys’s employee utilization stood at a relatively low 73% in the March quarter, even after excluding trainees. The company has said that it expects utilization to drop further in the June quarter, which isn’t surprising, given the anaemic growth it is expecting.

Its guidance for the year, of 8-10% growth in dollar revenue terms, also implies relatively lower volume growth. Part of this can be met by increasing employee utilization. Unless the demand environment improves considerably, it doesn’t make sense to increase employee strength, as it will lower utilization levels further and hurt profitability. The good news is that the company is honouring its campus offers.

Needless to say, this news suggests the company doesn’t see a revival in demand anytime soon. According to some brokerages, the company is likely to cut its dollar revenue growth guidance when it announces its June quarter results. This is because of adverse cross-currency movements.

It remains to be seen if the company is able to meet its muted June quarter guidance of 0-1% revenue growth, especially considering that it has missed three out of its last five quarterly guidance estimates.

Another guidance miss could lead to a larger cut in the annual guidance, since its annual growth target already assumes an average quarterly growth rate of 4.3-4.8% in the September, December and March quarters of the current fiscal year.

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Tough times (PDF)

Quarterly performance (PDF)