After three relatively strong quarters, Infosys had a moderate March period though the company did meet market expectations with respect to its financials.
Its guidance for 2014-15was ahead of market expectations and may be regarded as a tad conservative, but still short of the industry growth rate.
A reasonable number of client additions, continuing expansion in Europe and growth in its traditional IT services offering were positives for the company. Persistent increase in attrition and weakness in its retail vertical were points of concern.
During the March quarter, the company’s revenues declined marginally in dollar terms, while net profits were up 5.2 per cent sequentially. Volumes (person months billed) were up marginally (0.4 per cent) during the period.
For Infosys, the weakness in growth from the North American Geography has somewhat been made up by continuing strength and expansion in Europe as revenue from the geography was up 1 per cent. For three quarters now, revenue from Europe has grown at a pace faster than the overall company’s rate.
Infosys has focused on client additions in the mid-sized categories this time around. It added as many as nine customers in various buckets in the $20-60 million categories.
The company’s ‘bread and butter’ offerings including application services, broadly classified as business IT services grew at a healthy pace during the quarter. Infosys has looked to grow this offering at a faster pace as it seeks to reach the industry’s growth rate. It has indicated that discretionary spends have not been forthcoming in the last quarter. The company’s attrition rate was a worrying 18.7 per cent, among the highest in relation to top-tier peers in the industry. Even as it gives out wage hikes to stem attrition, further salary increases can dent margins. The strengthening of the rupee, especially if there is a decisive election mandate, could also eat into profitability.
Retail verticalThe retail vertical saw a decline in revenues for the second successive quarter, as weakness persisted in the US clients.
In a rather challenging FY14, with founder NR Narayana Murthy returning and ushering many changes, Infosys still managed to grow revenues 11.5 per cent in dollar terms, just a little short of the industry’s growth rate. So, with expectations of FY15 generally being optimistic for most IT players and the industry as a whole, a 7-9 per cent guidance for revenue growth might well be a case of classic Infosys conservatism.