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Infosys Q1 FY2013 Result Fails to Meet Expectations

By Anup Varier, 12-Jul-2012

A downwardly revised overall growth projection for the year and less than expected revenue growth has disappointed analysts.

Infosys Q1 FY2013 Result Fails to Meet Expectations
Our focus on Infosys 3.0 and building tomorrow’s enterprise coupled with disciplined execution will help us deliver high-quality growth S. D. ShibulalCEO and MD, Infosys

Infosys has announced its consolidated results, under International Financial Reporting Standards (IFRS), for the first quarter ended June 30, 2012, posting revenue of $1,752 million.

Although representing a year-on-year(YoY) growth of 4.8 percent, this quarterly result has failed to meet industry analysts' expectations.

"Infosys reported yet another disappointing quarterly result. The dollar revenue declined 1.1 percent quarter-on-quarter(qoq) to $1,752mn as against expectations of it remaining flat," said Ankita Somani, Research Analyst-IT, Angel Broking.

Somani also pointed out that despite reaping the benefits from an approximate 8 percent INR depreciation and not having wage hikes, the EBIT(Earnings Before Interests and Taxes) margin of the company declined by 1.9 percent qoq to 28 percent.

Dipen Shah, Head of PCG Research, Kotak Securities attributed these variances to specific issues. "Infosys’ revenue growth for 1QFY13 was lower than estimates largely due to a one-time reversal of $15mn of revenues from one client because of prudence," he said.

Infosys expects a growth of 5.0 percent YoY as against expectations of 6-8 percent.

Even the company’s outlook for the fiscal year ending March 31, 2013 targeting a YoY growth of 5.0 percent, with expected revenues of $7.343bn, falls short of analysts’ expectations of 6-8 percent.

"The reduced growth guidance is largely due to cross currency impact and lower realizations rather than volumes, we understand. We believe that, growth rates for Infosys will improve at a faster pace, once there is revival in the industry growth,” said Shah.

Analysts suggest that overall the results were gloomy, with guidance numbers indicating that management is seeing challenges in terms of IT spends from big accounts.

"We will further downwardly revise our estimates for FY2013 being cognizant of the effect of disappointing guidance and uncertain macros," added Somani.

On the positive side, Infosys and its subsidiaries added 51 clients during the quarter and posted a net income after tax of $416 million for the quarter; a YoY growth of 8.3 percent.

"Our focus on Infosys 3.0 and building tomorrow’s enterprise coupled with disciplined execution will help us deliver high-quality growth, despite challenges seen in the global economic situation resulting in slower IT spends by large corporations, " said S. D. Shibulal, CEO and Managing Director, Infosys.

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