Infosys meets market expectations; utilization up, attrition worrisome
Infosys Ltd. (NSE: INFY) announced its Q3 2014 results on 10 January 2014, with better-than- expected performance. However, the results are in line with market estimates. The company reported revenue growth of 0.5% quarter-on-quarter (QoQ) and 25.0% year-on-year (YoY). Net profit grew by 19.4% QoQ and 21.4% YoY. Infosys reported earnings per share (EPS) of INR50.32 for the quarter, which translates into a 19.5% QoQ growth and a 21.3% YoY growth.
The company is optimistic and very confident about its outlook for FY 2014. Infosys revised its FY 2014 dollar revenue growth estimate to 11.5-12% from 9-10% and FY 2014 rupee revenue growth estimate stands at 24.4-24.9%.
Looking at the geographical breakup of revenue, Infosys has garnered higher revenue from Europe. On the other hand, lower revenue generation from North America can be a concern for the company. As shown below, QoQ revenue contribution from North America has decreased from 61.5% (Q2 2014) to 60% (Q3 2014).
On the client front, Infosys and its subsidiaries added 54 clients during the quarter. This is lesser than the earlier addition of 68 during Q2 2014 and 89 during Q3 2013.
Infosys has reported a 1% increase in its utilization rate, which is considered as big plus for the IT major. Efforts toward operational optimization seem to be working in favor of the company, and if this continues, we could see more margin expansion in the coming weeks.
One of the main concerns for the company is its increasing attrition rate, which rose to 18.1% in recent quarter. As of December 31, 2013, the company had an overall employee strength of 158,404 employees (for Infosys and its subsidiaries), which is 1,823 lesser than its total headcount of 1,60,227 as on September 30, 2013.
The earnings definitely give enough reason for the investor to cheer about the stock. If the utilization rate further improves and moves toward early 80s, investors will see more reason to believe in the growth story of the IT major.