The Telegraph
Saturday , October 13 , 2012
Since 1st March, 1999
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Infy fails to impress
Net profit rises but operating margins dip

Mumbai, Oct. 12: Software major Infosys today reported a net profit of Rs 2,369 crore in the second quarter ended September 30, up 3.5 per cent quarter on quarter which was largely in line with market estimates.

Yet, the stock sank 8.5 per cent at one stage as investors were spooked by the 166 basis points decline in operating margins to 26.3 per cent and tepid revenue guidance for the full year.

Analysts had expected the infotech bellwether to clock a net profit of around Rs 2,300 crore. The company had reported a net profit of Rs 1,906 crore in the same quarter a year ago.

The sharp drop in operating margins left marketmen puzzled since they have been predicting a strong quarter for infotech companies.

The company did not have to battle currency headwinds or shoulder the burden of a wage hike during the quarter, which is why observers were rattled by the crimped margins.

“The most disappointing element was the drop in operating margins to 26.3 per cent even though the rupee had been almost flat quarter-on-quarter and there was no other visible headwind that could have squeezed margins,” said Ankita Somani, research analyst (information technology and telecom) at Angel Broking.

Infosys said revenues in dollar terms for the year ended March 31, 2013 would be at least $7,343 million, retaining the forecast of 5 per cent over last year. Observers were disappointed since they had been expecting the company to raise its guidance to 6 per cent after the Lodestone acquisition.

Infosys also scaled down its dollar earnings per share (EPS) guidance for the year to at least $2.97 from $3.03, adjusting for the currency exchange rate.

After the sharp tumble in early trades, the Infosys stock recovered some ground after senior company officials said the Lodestone numbers would be factored in from the next quarter.

The share finally ended the day at Rs 2,395.65, down Rs 135.80, or 5.36 per cent, on the Bombay Stock Exchange.

The Bangalore-based company said it had decided to raise employee wages. Analysts said this would impact margins in the third quarter.

Striking a cautious note, CEO and managing director S.D. Shibulal said the industry continued to face global economic uncertainty.

New clients

The software exporter added 39 clients during the quarter with a gross addition of 10,420 employees.

Net employee additions amounted to 2,610. However, the company saw a few clients walking away in certain categories.

For instance, it had no client with billings of over $300 million. It also reported fewer number of clients with billings of $100 million.

Revenues rose nearly 22 per cent year-on-year to Rs 9,858 crore, largely in line with estimates.

The company also declared an interim dividend of Rs 15 per share.