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Rediff.com  » Business » FY14 was tough for Infosys, but co assures growth this fiscal

FY14 was tough for Infosys, but co assures growth this fiscal

April 16, 2014 12:05 IST

FY14 was tough for Infosys, but co assures growth this fiscal

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Infosys, India's second-largest information technology (IT) services company, has closed FY14 with a revenue growth of 11.5 per cent in dollar terms and 24.2 per cent in rupee terms.

Towards the end of the fourth quarter, the company had said it would meet the lower end of its revenue growth forecast of 11.5-12 per cent for FY14.

While the company's fourth-quarter financials, announced on Tuesday, were largely in line with the Street's estimates, what surprised the market was its revenue growth forecast of seven-nine per cent for FY15.

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Photographs: Reuters
Tags: FY14 , FY15 , India

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FY14 was tough for Infosys, but co assures growth this fiscal

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The Infosys stock rose three per cent in early trade on Tuesday but ended the day with a gain of only 0.76 per cent over previous close on BSE.

The absence of any nasty surprise in the result boosted sentiment but a weak commentary after announcement of the result took away most of the stock's gains. Valuations seem to factor in the fact that the company's revenue growth was weaker than the industry estimates.

Nasscom had announced earlier this year India's software exports in FY15 would grow 13-15 per cent, significantly higher than Infosys' guidance.

On the New York Stock Exchange, the Infosys stock was 5.90 per cent down at the time of going to press.

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Photographs: Reuters

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FY14 was tough for Infosys, but co assures growth this fiscal

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Other key metrics for the quarter

0.4%: Volume growth

18.7%: Attrition up 60 bps to reach an all-time high

74.4%: Employee utilisation (up 30 bps sequentially)

0.8%: Sequential revenue decline from North America

1%: Sequential rise in revenue from Europe

0.5%: Sequential drop in financial services and insurance

Source: Company

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Photographs: Reuters

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FY14 was tough for Infosys, but co assures growth this fiscal

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The company, however, continues to be highly profitable in rupee terms. In the quarter ended March, the Bangalore-based company posted a 25 per cent annual growth in net profit at Rs 2,992 crore, more than the consensus estimate of Rs 2,835 crore (Rs 28.35 billion).

Sequentially, the company's net profit grew 4.1 per cent. At Rs 12,875 crore (Rs 128.75 billion), the revenue in the March quarter was 23.2 per cent higher on annually but 1.2 per cent lower sequentially, mainly due to some project ramp-downs and cancellations during the quarter.

The profit margins expanded 50 basis points from the previous quarter on the back of cost-cutting initiatives the company undertook after the return of co-founder N R Narayana Murthy as executive chairman in June last year.

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Image: Infosys' pyramid-shaped building in Bangalore.
Photographs: Courtesy, Infosys

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FY14 was tough for Infosys, but co assures growth this fiscal

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For the full year, the net profit grew 13 per cent to Rs 10,648 crore (Rs 106.48 billion), while revenue rose 24.2 per cent to Rs 50,133 crore (Rs 501.33 billion).

As the company had earlier suggested, it managed to meet the lower end of its revenue forecast, with its revenue during the financial year growing 11.5 per cent in dollar terms to $8,249 million.

"Mid-quarter, we had said we would be near the lower end of the guidance.

That's exactly where we have landed up, at 11.5 per cent. We also believe many factors that impacted us in the third and fourth quarters of 2013-14 would continue into the next year, though it remains to be seen whether that will be for the whole of next year or part of it," said Infosys Chief Executive & Managing Director S D Shibulal.

"We have considered all of these factors while giving the guidance," he added.

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Photographs: Courtesy, Binoyjsdk/Wikimedia Commons
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FY14 was tough for Infosys, but co assures growth this fiscal

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Seeking to end the speculation that Murthy's son Rohan Murty was being prepared to succeed him as Infosys CEO, Shibulal clarified that Rohan's term would end with his father's.

When the senior Murthy had returned to the company, he had brought his son as his executive assistant.  

Outlook for 2014-15

For the FY15 , Infosys has given a revenue growth outlook of seven-nine per cent, lower than what it had given in FY13, a time when it was struggling on many fronts.

According to Infosys' President B G Srinivas, the company is seeing concerns in three verticals - retail/CPG, manufacturing and financial services - because of ramp-downs, budget cuts and cancellation of projects. Especially in financial services, three banks - two in the US and one in Europe - pulled back programmes during the quarter.

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Photographs: Vivek Prakash/Reuters

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FY14 was tough for Infosys, but co assures growth this fiscal

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Srinivas said, “What we have also seen in recent past is since IT budgets are under pressure, the decision-making cycles are also impacted. So, there is a degree of uncertainty, cutting across sectors.”  

Infosys was able to improve its operating margin for the fourth quarter by 50 basis points to 25.5 per cent, primarily driven by various cost-cutting measures the company took in recent months.

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Photographs: Vivek Prakash/Reuters

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FY14 was tough for Infosys, but co assures growth this fiscal

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Margin expansion

A positive amid growth concerns was the expansion in margins. The company has expanded margins for two straight quarters on cost optimisation and change in onshore and offshore mix.

"Our margins for April-June 2014 are likely to take a hit of 250-300 basis points due to wage increments and visa costs. For 2014-15, we expect margins to stay around the same level as 2013-14, that is, 24 per cent," said Infosys Chief Financial Officer Rajiv Bansal.

"We can leverage cost optimisation for margin growth, but we have to bridge the gap between the industry and our growth."

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Photographs: Vivek Prakash/Reuters
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FY14 was tough for Infosys, but co assures growth this fiscal

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The company saw a muted volume growth (in billed man-hours in a quarter) of 0.4 per cent. Employee utilisation, which the company has been trying hard to improve, went up 30 basis points to 74.4 per cent (including trainees) in the March quarter of 2013-14.  

Attrition level at a high

The attrition level, one of the biggest concern areas for Infosys, increased in the March quarter.

The attrition rate touched an all-time high of 18.7 per cent (up 60 basis points from the previous quarter). "Attrition for the fourth quarter is the highest I have ever seen," Shibulal said. "We have taken several initiatives to bring it under control.

We have given compensation increase, we have restructured variable payout component, we have given promotions and progressions, and we believe these measures will help reduce attrition."

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Photographs: Vivek Prakash/Reuters

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FY14 was tough for Infosys, but co assures growth this fiscal

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The company added 10,997 employees (gross) in the March quarter and 39,985 during the financial year to take its total headcount to 160,405.  

In February this year, Infosys had announced a six-seven per cent salary increase for its offshore employees, and one-two per cent for those on site. The salary hikes were made effective from April 1.

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FY14 was tough for Infosys, but co assures growth this fiscal

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Clients and regions

On the client front, Infosys saw a marginal decline in revenue share from top clients, at 3.6 per cent in the March quarter, against 3.7 per cent in the previous quarter.

Revenue share of top-five clients remained unchanged at 14.1 per cent on a sequential basis, while that for top-10 clients fell 10 basis points to 23.4 per cent.

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Geographically, Infosys saw a 0.8 per cent sequential decline in revenue from North America, while its revenue from Europe grew 1.0 per cent during the quarter. This was a second straight quarter of decline in revenue from North America, which accounts for nearly 60 per cent of the company's overall revenue.  

The revenue from India remained stable, while that from rest of the world (excluding North America, Europe and India) declined 1.5 per cent on a sequential basis.

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On the business verticals front, Infosys saw revenue from financial services and insurance falling 0.5 per cent sequentially in the March quarter, while manufacturing grew a tepid 0.4 per cent during the quarter.

The retail and consumer packaged goods segment fell 3.5 per cent on a quarter-on-quarter basis.

The company said this was due to seasonality on clients' end. The energy, utilities and communications segment saw 2.7 per cent sequential rise in revenue.

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Photographs: Courtesy, Infosys
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Dipen Shah, head (Private Client Group Research), Kotak Securities said, "Infosys' result and guidance were largely in line with estimates,"  

He further said, “We believe client- and vertical-specific issues will likely impact the near-term results. However, we also think the initiatives being taken by the management will lead to higher growth and stable margins in the second half of 2014-15 and 2015-16."

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Image: S.D. Shibulal, chief executive officer of Infosys.
Photographs: Reuters

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