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Infosys's Q4 Nos, guidance disappoint; shares plunge 6%

Last Updated 24 April 2015, 12:49 IST

IT services major Infosys today reported a moderate 3.5 per cent growth in its net profit at Rs 3,097 crore for the quarter ended March 31, missing market expectations as business remained challenging for the company.

The country's second largest software exporter had recorded a net profit of Rs 2,992 crore in the January-March quarter of 2013-14.

Revenue during the quarter under review rose by 4.2 per cent to Rs 13,411 crore from Rs 12,875 crore in the comparable period in the previous fiscal.

On a quarter-on-quarter, profit fell 4.7 per cent from Rs 3,250 crore in October-December period. Revenue declined 2.8 per cent from Rs 13,796 crore.

Infosys said it expects revenue growth in the range of 10-12 per cent only for 2015-16 fiscal in constant currency terms, whereas the Nasscom estimate for the industry 12-14 per cent.

"We are expecting to grow at 10-12 per cent. We are targeting revenues of USD 20 billion by 2020. Our average revenue per employee is expected at USD 80,000 by 2020," Infosys CEO Vishal Sikka said.

Reacting to disappointing numbers, Infosys shares plunged by almost 6 per cent to close at Rs 1,996.25 apiece on BSE.

Infosys's rival TCS, Wipro and HCL Tech all had reported earning numbers that fell below expectations, hit by currency fluctuations as the US dollar grew stronger against all major currencies and Indian rupee.

"We see industry going through a fundamental and structural transition. Despite being a challenging quarter, I am encouraged by the early successes in executing our Renew-New strategy, on a foundation of learning," Sikka said.

Addressing investors in a concall, he said that the pricing is under pressure due to increasing commoditisation in the tradition outsourcing business.

In US dollars, Infosys net profit grew 2.3 per cent to USD 498 million in the fourth quarter of 2014-15 from USD 487 million in the year-ago period; revenues rose 3.2 per cent to USD 2.159 billion from USD 2.092 billion a year ago.

Quarter-on-quarter, net profit fell 4.6 per cent from USD 522 million in December quarter, whereas revenue declined 2.6 per cent from USD 2.218 billion during the same period.
For the entire 2014-15 fiscal, Infosys' net profit grew 15.8 per cent to Rs 12,329 crore compared to 2013-14 fiscal, while revenue was up 6.4 per cent to Rs 53,319 crore.

In US dollars, net profit rose by 15 per cent to USD 2.013 billion, whereas revenue was up by 5.6 per cent to USD 8.711 billion during the same period.

On challenges, Infosys COO U B Pravin Rao said: "Services growth in the fourth quarter was lower than we expected, though we saw healthy growth in Finacle and our Edge suite".

Pricing continues to be under pressure due to increasing commoditisation in traditional outsourcing business, requiring the firm to ramp up productivity through automation and enhance its differentiation in large engagements, he added.

Infosys CFO Rajiv Bansal said: "We were able to improve profitability during the year even as we made investments into our employees and other strategic areas. We have been able to achieve this because of increased operating efficiencies despite a difficult pricing environment."

On the outlook, Infosys said: "Revenues are expected to grow 10-12 in constant currency terms." The firm said it expects revenues to grow 8.4-10.4 in Rupee terms and 6.2-8.2 per cent in US dollar terms.

Infosys announced that it will acquire digital commerce player Kallidus Inc (d.b.a Skava) and its affiliate, for USD 120 million (about Rs 763 crore).

The software services exporter is also making an early stage investment of USD 2 million in Airviz (around Rs 13 crore), to acquire a minority share.

That apart, it said the Board of Directors has "approved the transfer of the business of Finacle and EdgeServices to the company's subsidiary -- EdgeVerve Systems Ltd".

Cash and cash equivalents, available-for-sale financial assets, certificates of deposits and government bonds were Rs 32,585 crore as on March 31, 2015.

At the end of March quarter, Infosys's total headcount stood 1,76,187, as against 1,60,405 a year-ago. Net additions for year ended March 31, 2015 were 15,782.

The Infosys Board also recommended a dividend of Rs 29.50 per share for fiscal 2015.
The company had 950 active clients at the end of March 31, 2015.

Geography-wise at the end of the March 2014-15 quarter, North America contributed 62.8 per cent towards revenue, followed by Europe (23.1 per cent), Rest of the World (11.6 per cent) and India (2.5 per cent).

In terms of services, Business IT contributed 62.3 per cent, Consulting, Package Implementation & Others 32.7 per cent and Products, Platforms and Solutions 5 per cent.
Industry wise, BFSI was the top revenue generator with 33.6 per cent share, followed by Manufacturing (23.8 per cent), Retail & Life Sciences (23.5 per cent) and Energy, Utilities, Communications & Services (19.1 per cent) during the quarter.

Infosys spent Rs 254 crore in 2014-15 towards Corporate Social Responsibility (CSR), primarily being carried out through Infosys Foundation, its philanthropic arm.

Speaking at the investor call on acquiring Kallidus, Sikka said the firm has entered into a definitive agreement to acquire Kallidus and its affiliate, which provides digital experience solutions, including mobile commerce and in-store shopping experiences to large retail clients.

"It is an all-cash deal for a total consideration of USD 120 million retention bonus and a deferred component. Kallidus delivers a cloud hosted platform for mobile websites, apps, and other digital shopping experiences across mobile, tablet, desktop, in-store and all emerging channels to large retail clients worldwide," he added.

The platform enables retailers to provide mobile specific experience to their customers through an agile and flexible environment, enabling personalisation and delivering customer analytics across multiple channels, Sikka said.

"We also entered into a definitive agreement for an early-stage investment of USD 2 million in Airviz, to acquire a minority share. Airviz is a personal air quality monitoring startup and spin-out from Carnegie Mellon University.

"This investment was made out of the USD 500 million Innovation Fund earmarked for investments in disruptive new technologies and positions us as a driving force in fast growing personal health monitoring market with a big data solution that provides indoor air pollution sensing and visualisation," he added.

Sikka said Infosys is also training its employees on design thinking.

"Our strategic endeavour to inject the design thinking philosophy across the organisation continues. Till date more than 25,000 employees across Infosys have been trained in design thinking.

"We have also established a design thinking training course for new joiners at the Infosys Global Education Centre in Mysore. More than 22,000 trainees are expected to undergo this training in FY 2015-16," Sikka said.

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(Published 24 April 2015, 09:23 IST)

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