Infosys shares slump on concerns of low growth

Shares of Infosys fell on Thursday after Executive Chairman N R Narayana Murthy said revenues for the fiscal year ending March could grow at the lower end of the IT outsourcing company's 11.5 to 12 per cent projections.

Infosys co-founder founder Murthy, brought back in June to revive the company's fortunes, also forecast an operating margin of 23.5 per cent, down from 29.5 per cent in the year to March 2011 before his return.

India's second biggest IT outsourcer by revenue after Tata Consultancy Services Ltd had suffered a string of disappointing earnings results after focusing on proprietary software at the expense of bread-and-butter outsourcing contracts.

Murthy has sought to refocus on big-ticket contracts and build a "predictable earnings model" within three years of re-appointment. Even so, the company still struggles to boost revenue from its software platforms and high-margin consulting business.

"We are not very happy with our performance over the last two years," Murthy had said on Wednesday in an investor presentation organised by British bank Barclays Plc in Bangalore. "Our growth rate was about 5.8 per cent compared to the 11 per cent for the Indian software industry," Murthy said.

In January, Infosys had raised its revenue growth outlook range to 11.5 to 12 per cent from 9 to 10 per cent forecast in October, citing expectations for increased demand for IT outsourcing.

Expressing "great concern" over declining revenue growth, Murthy said that the growth rate of the company declined 77 per cent during March 2011 to March 2013. “Under normal circumstances, our operating margin should have been 41.5 per cent. But it ended up as 23.5 per cent as of date and that means it is a drop of approximately 45 per cent.

“Therefore, revenue growth went down by 77 per cent and margin growth went down by 45 per cent during the period 31st March 2011 to 31st March 2013. These are matters of great concern for us,” he told investors at a Barclays meet.

The rupee was about 44 per dollar as of March 31, 2011, moving to around 54-55 as of March 31, 2013 and went further down to 62 in September last year.

"About 48 per cent of our revenues gets translated to rupee and given that there was a devaluation of about 25 per cent in the rupee-dollar exchange rate, we should have added approximately 12 per cent to our operating margin," he said.

Stressing that there is “absolutely nothing wrong” with its Infosys 3.0 strategy, Murthy accepted that the company could have "done a better job in executing that strategy".Reacting to this, the firm's shares made a weak opening at the BSE and further plunged 9 per cent to Rs 3,340. Its shares fell by 8.54 per cent to close at Rs 3,357.50 apiece on the BSE on Thursday. 

Infosys shares have risen 52 per cent since Murthy's June 1 return, hitting a record on March 6. In comparison, shares of Tata Consultancy have risen 45 percent.

Speaking at the same event on Wednesday, Chief Executive S D Shibulal said of particular concern was reduced spending on personal computers by high tech enterprises, and by retail customers pressured by holiday discount costs.

Infosys also suffered unanticipated cancellations and some projects were slowed down because of a lack of workers with relevant skills, Shibulal said.

“While we saw some initial results of our efforts in the last few quarters, we expect near-term performance to be choppy,” he said.