INFOSYS - GOOD NUMBERS BUT........
By Ruma Dubey
Infosys surprised everyone with a much better-than-expected Q4FY14 performance. Or maybe we should say, because expectations were so low, it was easier to please.
The large cap IT bellwether company, for Q4FY14, posted a 23% (YoY) rise in consolidated revenue at Rs.12,875 crore and net profit was up 25% at Rs.2992 crore. But the picture not as robust sequentially – revenue is down 1.2% and net profit grew 4%.
The YoY improvement shows that the lower base effect will help show a better performance going ahead and it also means that things are indeed improving on the global macro economic front, especially in USA. But QoQ fall is irksome as seasonally, Q3 is the weakest and yet, Q4 did not emerge better in terms of revenue growth.
The company has ended FY14 on a much better note – consolidated revenue at Rs.50.133 crore was higher 24% and net profit rose 13% at Rs.10,648 crore.
Now a look at the guidance. At the beginning of the fiscal FY14, the company had given a guidance of in US dollar, a revenue growth guidance of 6-10% and rupee revenue guidance to grow 13-17%. And then at end of Q2FY14, the company hiked it revenue guidance for FY14 – a dollar revenue growth of 9-10%. This trend of hiking its guidance was seen again at end of Q3FY14, where the company guided dollar revenue to grow 11.5% to 12% for FY14. This consistent upward revision in guidance was probably marred by the exodus of the top management at Infosys. The happenings in the Board room, the leaving of founder and senior members of Infosys was more worrisome, leaving little time to rejoice this upward revision. So throughout the fiscal, the impending worry at Infosys was that it was going through a major management churn at the top level and that was expected to impact the performance. Thankfully, the company, now under Shibulal, who is also on his way out, seems to have done well, under these trying circumstances.
But then again, if the company on one hand was constantly upping its guidance every quarter, what was the meaning of the management, in March’14, saying that it expects sluggish growth in Q4FY14 mainly due to muted spending by clients, especially in the retail sector? The Infosys management went on to indicate that it is seeing weakness in client spending in entire Q4 and would not be able to meet the lower end of its revenue growth guidance. Well, to give credit, Q4 performance, sequentially was indeed weak but vis-à-vis the guidance, it did manage to do much better. And sales from its retail sector vertical fell 3.5% in Q4FY14, with marginal declines seen in financial services as well as manufacturing. This is as per the management’s indication given in March’14; so ultimately, what the management said in March was more relevant than the entire year’s guidance.
For FY15, the company has guided a revenue growth of 7-9%, lower than the previous fiscals guidance. So is the guidance deliberately more muted, so that it can ‘overachieve’?
The ongoing exodus of top management has surely affected the morale of the employees as attrition rate for quarter rose marginally to 18.7% from 18.1%. But at the same time, it managed to add 10,997 employees during the quarter and 39,985 during the year; with this the total tally of employees stands at 1,60,405.
A look at the geographies shows that North America, the region from where major chunk of Infosys business comes, declined marginally by 0.7% (YoY) and Europe grew 0.8%. RoW remained stagnant while India grew marginally from 2.4% to 2.6%. The question here - if things in America are improving, why did business for Infosys decline,? And then a look at the client list shows that two clients in US$100 million plus and one from US$200 million plus dropped (QoQ). Also, additional of clients was lower – 50 in Q4 v/s 54 in Q3 and 56 in Q4FY13.
The company is sitting on cash of over Rs.30,000 crore. It hiked the dividend payout but to get more value, the pressure increases to deploy the cash productively. Also, effective 1st April, Infosys has raised the salary of its employees working in the country by 6-7% and by 1-2% for onsite workers. Some 12,500 employees have been promoted since October. This is being done to obviously, boost the morale but is sure to affect the margins in Q1FY15 by around 3%, as indicated by the company’s CEO, Rajiv Bansal.
For now, all eyes will be on the big question – who will succeed Shibulal? The performance is good but till this churn at the top does not stop, worry will remain.
PS: TCS will declare its numbers tomorrow, so will Mindtree. Wipro and HCL Tech are scheduled for 17th April.