Pricing pressure and lower volumes bring Infosys Q4 profit down to 4.7 pc

BANGALORE, INDIA: After TCS, HCL Technologies and Wipro, Infosys is now the fourth home grown IT services major that fails to cheer the market. But this was neither surprising, nor unexpected as two days back, we told our readers that we see a muted Q4 revenue performance of Infosys below its industry peers and even below NASSCOM estimated industry growth rates.

Read the CIOL prediction here.

Infosys missed street estimates today as the net profit dropped to 4.7 percent sequentially to Rs. 3,097 crore for the quarter ended March 31, 2015, amidst pricing pressure and lower volumes. The YoY growth was 3.5 percent.

Revenue from North America and Europe declined by 0.7 percent (0.4 percent in constant currency) and 6.1 percent (0.3 percent in constant currency) sequentially, while revenue from India droppped by 4.1 percent (4 percent in constant currency) sequentially. Rest of the world's revenues also fell by 5.7 percent (0.1 percent in constant currency) sequentially.

The company added 52 clients (gross) during Q4 against 59 clients addition in Q3. It added one client each in USD 100 million+ and USD 50 million+ categories.

Vertical wise, Financial Services & Insurance declined by 1.3 percent sequentially, but grew by 1.0 percent in constant currency. Manufacturing declined by 1.1 percent sequentially, but grew by 1.1 percent in constant currency. Retail & Life Sciences declined by 2.6 percent sequentially and 1.1 percent in constant currency. Energy, Utilities, Communications declined by 6.7 percent sequentially and 3.8 percent in constant currency.

"Services growth in the fourth quarter was lower than we expected, though we saw healthy growth in Finacle and our Edge suite. Pricing continues to be under pressure due to increasing commoditization in the traditional outsourcing business, requiring us to ramp up productivity through automation, and enhance our differentiation in large engagements”, said Infosys COO, U.B. Pravin Rao.

The  IT services major expects to pursue a healthy overall growth in FY16 which is to the tune of 10-12 percent in constant currency terms and 8.4-10.4 percent in INR terms.

Infosys added 6,549 employees during the quarter, taking the total base to 1,76,187. The attrition rate dropped to 18.9 percent in Q4 compared to 20.4 percent in Q3, and compared to 23.4 percent in Q1.

“Our focused employee engagement initiatives over the last few months have resulted in containing employee attrition to one of the lowest in recent times. And our investments in innovation and in renewing our capabilities are helping to elevate our client relationships,”  said CEO & MD Dr. Vishal Sikka. "We see the industry going through a fundamental and structural transition. Despite being a challenging quarter, I am encouraged by the early successes in executing our Renew-New strategy, on a foundation of learning.”

Commenting on the Infosys Q4 performance, Dipen Shah, Head of PCG Research, Kotak Securities said, “Infosys reported a disappointing set of numbers with a 0.4 percent de-growth in revenues on a CC basis. The negative surprise came from a 1.7 percent decline in realisations on CC basis. Client penetration has also improved QoQ and 5 large deals have been signed. The long-term strategic plan reflects Infosys’ focus on next-generation services and delivery models. Infosys is working on multiple projects in areas like Open Source technology, Design Thinking and platforms. We believe that, these initiatives will shore up the growth rates of Infosys and sustain margins over the longer term.”