Top brass is cautious but Infosys Ltd outlook cheers Street

Apr 16 2014, 20:03 IST
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Stock rises as company ups dividend payout ratio to 40% from 30%. PTI Stock rises as company ups dividend payout ratio to 40% from 30%. PTI
SummaryStock rises as Infosys ups dividend payout ratio to 40% from 30%.

Infosys Ltd’ dollar revenue guidance of 7-9% for FY15 surprised the Street on Tuesday, given how just a month back the IT major had indicated some loss of momentum in near-term revenues. In mid-March, Infosys had said profits in Q4FY14 might come in lower than anticipated since certain verticals weren’t yielding enough sales. However, while the outlook for the top line enthused investors, they remained cautious on margins.

Infosys beat Street estimates for Q4FY14, but analysts pointed out that the performance had come from savings in costs rather than growth in the top line; the sequential de-growth in revenues, they said, was disappointing. Dollar revenues came in at $2.09 billion, a fall of 0.4% sequentially, while profits grew 5.2% sequentially to $487 million.

India’s second-largest software services exporter posted better-than-expected Ebit margins of 25.5% for Q4FY14 up around 50 basis points sequentially, helping the bottom line grow 4.1% (in rupee terms) over the December quarter to R2,992 crore.

Management commentary was cautious. BG Srinivas, president, observed that there were signs of recovery in the US and while it might be a slow one, the uncertainty had reduced. Srinivas added that the situation in Europe is low-key but stable. “We don’t see the situation as it was when the crisis in Greece broke out. At the same time, top line forecasts are pretty muted, there’s no extraordinary growth and so there is a focus on costs,” he told FE. Srinivas, tipped to be in line to succeed SD Shibulal as MD&CEO, pointed out that regulatory pressure was also impacting clients, besides risk management and security issues.

Apart from the weak top line, analysts were also disappointed with metrics such as attrition which – despite two recent salary hikes – climbed to 18.7% from 18.1% in Q3FY14. Viju George of JPMorgan pointed out that attrition at the mid-level hurts execution and day-to-day operations. “Infosys will have to ensure that its attrition controlling measures have the desired effect as quickly as possible,” George wrote in a report.

Others like Ian Marriott, vice-president, Gartner are not sure that the company is focussed on the right areas. “The company has not taken bold steps to regain the momentum and that’s a worry. The reality is that the markets are shifting to cloud and analytics, but the company’s thinking is slightly behind the curve,” Marriott observed.

With Infosys announcing a higher dividend payout ratio of up to

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