Infy beats market expectation, but stock crashes 8.4%

Q3 profits up 33%; revenue 31% YoY

In every quarter the information technology (IT) bellwether Infosys Ltd is the first to announce the financial result and is also the trendsetter for the IT stocks.

On Thursday, Infosys announced revenue and profit growth in the December quarter higher than what the stock watchers expected, yet its share price tumbled 8.40 per cent dragging down other IT stocks and the BSE IT index by 5.96 per cent. The market was concerned about the lower dollar revenue guidance given by the company.

Infosys announced that in the quarter ending December 2011 (Q3), its gross revenue at Rs 9,298 crore was 31 per cent higher (YoY) than Rs 7,106 in the same quarter last year and was 14.80 per cent higher (QoQ) than the September 2011 quarter. More importantly, its Q3 net profit at Rs 2,372 crore was 33.30 per cent higher YoY and 24.40 per cent higher QoQ. With this the company improved its net margin in Q3 by 97 basis points to 31.18 per cent from 30.21 per cent.

“Our revamped organisation and the promise of building tomorrow’s enterprise is helping us strengthen strategic partnerships with our clients. Our promise of consulting led transformation, optimising operations and accelerating innovation is gaining rapid traction across key markets,” said Infosys.

Of course, the company did benefit a lot from depreciation of rupee which fell 11 per cent against dollar in the December quarter. According to Infosys CFO V Balakrishnan, the company’s net margin gained  3 per cent due to rupee depreciation after it hedged revenue worth $847 million in the December quarter.   
Naturally, the company’s gains in terms of dollar were lower than gains in rupee terms. In dollar terms Infosys’ revenue for Q3 at $1,806 was 13.9 per cent higher YoY and 3.4 per cent higher QoQ. Similarly, its net income at $458 million was 15.4 per cent higher YoY and 11.4 per cent higher QoQ.

Divergent outlook
Infosys has projected that in March quarter the rupee revenue growth of the company will be around 30 per cent and earnings growth will be around 32 per cent.

The dollar guidance, however, was much lower than the one in rupee which said revenue in March quarter will range between $1,806 million and $1,810 million indicating growth between 12.7 per cent and 13 per cent. For earnings per share the YoY growth is expected to be 15.7 per cent.

 “The global economy, driven by slower growth in developed markets coupled with the European crisis, could impact the growth of the IT industry,” said Infosys CEO & Managing Director S D Shibulal. “Notwithstanding short-term challenges, we are focused on long-term growth opportunities by investing in platforms and solutions - which will accelerate innovation, enhance returns for our clients and deliver higher business value.”

Explaining the reason why the Infosys scrip took a beating Angel Broking IT Research Analyst Ankita Somani said “Infosys Q3, results were lower than our expectations on the dollar revenue front, with dollar revenue growth at 3.4 per cent QoQ to  $1,806 million. The major disappointment came from the lowering of the FY2011-12 dollar revenue guidance growth to 16.4 per cent which was below our/consensus estimates of 17-19 per cent YoY.”

In the cloud practice, the company continued to see strong momentum winning over 15 deals in December quarter. As a Cloud Ecosystem Integrator, it has set up a private cloud environment to provide enhanced customer service for one of the largest telecom majors in APAC region, the company said.

Being a cash rich company as on December 31, 2011, Infosys had cash and cash equivalents of Rs 19,752 crore. But Infosys Chief Financial Officer V Balakrishnan feels that the volatility global currency market is a huge challenge. “Managing extreme currency volatility in an uncertain economic environment is going to be a challenge for the industry.

We believe our focus on high-quality growth combined with our flexible financial model will position us better during these challenging times,” he said. During the December quarter the company on net basis added 3,266 employees and acquired 49 new clients. At the end of the quarter it had 145,088 employees.