Infosys’s Q4 Net Profit Rises 4.1%; FY2015 Revenue Guidance Betters Estimates

Edited by Vani Rao

IT major surpasses Rs50,000 crore in full-year revenue for the first time

Infosys Logo
Source Infosys Website

Indian IT giant Infosys Ltd. (NYSE: INFY) announced its fourth-quarter and full-year results on April 15, 2014. Despite a tough IT environment, Infosys beat expectations by posting a 4.1% growth in consolidated net profit on the back of higher non-operational income and better utilization rates. And scripting this turnaround is Mr. N. R. Narayana Murthy, one of the founders who come back as Executive Chairman in June 2013, with the main aim of taking the company to its old glory.

In his second stint at Infosys, Narayana Murthy has managed to resurrect the company’s growth with some tough decision making. While Infosys looked steady heading to its Q4 FY2014 results, let us analyze how the erstwhile IT bellwether fared during the fourth quarter and the full-year ended March 2014.

•    The company’s Q4 consolidated net profit rose 4.1% to Rs2,992 crore, beating analyst estimates.
•    Non-operational income jumped 16.4% to Rs851 crore in Q4 over Q3.
•    The company’s dollar revenue grew by 11.5% in the FY 2014, in line with the company’s guidance.
•    During Q4, the company marginally improved its employee utilization to 74.4%, compared to 74.1% in the previous quarter, indicating that fewer employees are on the bench.
•    For FY2014, the company’s net profit rose 13% to Rs10,648 crore on a 24.2% increase in revenues to Rs50,133 crore as compared to FY2013.

•    Attrition rate continued to pose a threat for Infosys. The company’s attrition rate rose to 18.7% in Q4 FY2014 (as indicated in the graph below). However, management expects the attrition rates to drop by FY2015.

Attrition Rates
Source Bloomberg/WSA

•    Dollar revenue reported a drop of 0.4% in the reported quarter
•    Revenue from the US, its largest market, fell to 59.8%, primarily due to the softness in the retail business, which fell by 3.5%, on account of the harsh weather.
•    Infosys’s active client base in Q4 almost stood stagnant at 890, compared to 888 in the previous quarter. Moreover, its $100-million clients dropped to 13 from 15 in the reported quarter. However, the company added 50 new clients during Q4.
•    Repeat business in Q4 dropped to 96.3% from 97.3% in Q3 FY2014.

The Road Ahead: Guidance for FY2015
•    The company forecasts its dollar revenue to grow in the range of 7-9%, in line with the analyst polled by Reuters.
•    Infosys sees FY2015 operating margin at around 24%, similar to that in FY2014.
•    In a bid to address rising attrition rates, the company plans a salary hike of 6-7% for offshore employees. The wage hikes and visa costs could result in a 3% dip in margins in the first quarter.
•    Plans to recruit 200 people in the sales department.
•    S.D. Shibulal will retire as CEO, Managing Director and a member of the board on January 9, 2015, or when his successor is ready to assume office, whichever date is earlier. While Mr. Murthy is a strong mentor and will focus on continuity of business operations, Infosys is beginning its most-watched search for a new CEO. It remains to be seen whether the company will bring in an insider or look for fresh talent to transform its business, since Infosys is known to be risk averse.

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