X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Infosys 3QFY08: Back on track? - Views on News from Equitymaster
StockSelect
  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Infosys 3QFY08: Back on track?
Jan 11, 2008

Performance summary
  • Topline grows by 4% QoQ in 3QFY08, 20% YoY in 9mFY08.
  • EBITDA margins expand by 1.3% QoQ during the third quarter, mainly due to costs rationalisation.

  • Bottomline expands by 12% QoQ during 3QFY08, aided by expansion in operating margins and lower tax expenses.

  • Adds 47 new clients and a net of 8,100 employees during the quarter. Employee base now stands at 88,601 (including subsidiaries). Attrition level down marginally to 13.7% in 3QFY08 from 14.2% in 2QFY08.

  • Full year earnings per share (EPS) guidance increased to Rs 81, from Rs 80 at the end of 2QFY08.

Consolidated financial snapshot
(Rs m) 2QFY08 3QFY08 Change 9mFY07 9mFY08 Change
Sales 41,060 42,710 4.0% 101,210 121,500 20.0%
Expenditure 28,220 28,790 2.0% 69,270 83,900 21.1%
Operating profit (EBDITA) 12,840 13,920 8.4% 31,940 37,600 17.7%
Operating profit margin (%) 31.3% 32.6%   31.6% 30.9%  
Other income 1,540 1,580 2.6% 2,530 5,650 123.3%
Provision for investments - -   30 -  
Depreciation 1,440 1,530 6.3% 3,690 4,410 19.5%
Profit before tax 12,940 13,970 8.0% 30,750 38,840 26.3%
Extraordinary items - -   60 -  
Tax 1,940 1,660 -14.4% 3,590 4,740 32.0%
Minority interest - -   100 -  
Profit after tax/(loss) 11,000 12,310 11.9% 27,120 34,100 25.7%
Net profit margin (%) 26.8% 28.8%   26.8% 28.1%  
No. of shares (m) 573.3 573.3   568.2 573.3  
Diluted earnings per share (Rs)*         79.4  
P/E ratio (x)*         20.4  
*On a trailing 12-month basis
  • Infosys recorded blended volume growth of 4.5% QoQ during 3QFY08 (5.1% QoQ for offshore and 3% QoQ for onsite) and pricing growth of 1.2% QoQ (1.3% for offshore and 1.1% for onsite). The volume growth has been lower when compared with 2QFY08 mainly due to lesser number of billing days in this quarter. The company also saw rate increase in the BFSI vertical and has indicated that clients are increasing their BFSI offshore spend. This augurs well for the company as this vertical has been under pressure over the last 6 months mainly due to the US subprime crisis. The company added 47 new clients (1 giving revenues in excess of US$ 100 m) and 8,100 (net) employees during the quarter.

    Revenue break-up by service offerings
      2QFY08 3QFY08  
      Rs m % of total Rs m % of total Change
    Application development and maintenance: 18,149 44.2% 19,775 46.3% 9.0%
    Application development 8,951 21.8% 9,183 21.5% 2.6%
    Application maintenance 9,197 22.4% 10,592 24.8% 15.2%
    Business Process Management 2,135 5.2% 2,520 5.9% 18.0%
    Consulting Services and Package Implementation 9,690 23.6% 10,250 24.0% 5.8%
    Infrastructure Management 2,258 5.5% 1,922 4.5% -14.9%
    Product Engineering Services 657 1.6% 726 1.7% 10.5%
    System Integration 1,150 2.8% 1,153 2.7% 0.3%
    Testing Services 3,203 7.8% 3,161 7.4% -1.3%
    Others 2,299 5.6% 1,623 3.8% -29.4%
    Total services 39,541 96.3% 41,130 96.3% 4.0%
    Product revenues 1,519 3.7% 1,580 3.7% 4.0%
    Total revenues 41,060 100.0% 42,710 100.0%  

  • Operating margins have expanded by 1.3% QoQ mainly due to scale benefits. Over the last few quarters, Infosys has been able to improve its productivity by 1% QoQ and in this quarter too the productivity has gone up by 0.8% QoQ. In the 1QFY08 conference call, the management had mentioned that the margins could fall by 1% YoY in FY08. However, after two satisfying quarters, the company is hopeful of maintaining margins at the FY07 levels of around 31.6%.

    Revenue by Industry vertical
      2QFY08 3QFY08  
      Rs m % of total Rs m % of total Change
    Insurance, Banking and Financial services 14,987 36.5% 15,717 36.8% 4.9%
    Manufacturing 5,707 13.9% 6,236 14.6% 9.3%
    Retail 5,133 12.5% 5,125 12.0% -0.1%
    Telecom 8,458 20.6% 9,012 21.1% 6.5%
    Utilities 2,176 5.3% 2,221 5.2% 2.1%
    Transportation & Logistics 944 2.3% 1,025 2.4% 8.5%
    Services 3,162 7.7% 2,563 6.0% -18.9%
    Others 493 1.2% 811 1.9% 64.7%
    Total 41,060 100.0% 42,710 100.0%  

  • Infosys’ bottomline expanded by 12% QoQ in 2QFY08 and 26% YoY in 9mFY08. While, in QoQ terms, this expansion was mainly due to reversal of tax provision amounting to Rs 500 m, on 9-months basis profits have risen mainly due to 123% YoY rise in other income. Had this tax provision reversal not been there, the growth in profits would have been 7.4% QoQ during 3QFY08.

What to expect?
At the current price of Rs 1,620, the stock is trading at 12.1 times our estimated FY10 earnings. The past three quarters of this fiscal have been tough for Infosys mainly due to appreciating rupee. During this period, the company has lost Rs 21 bn (over US$ 500 m) in topline to rupee appreciation but has still been able to maintain margins, which is appreciable. The company is confident of maintaining the same margins as in FY07 and will be able to absorb appreciation of 3% to 5% in the currency.

On the demand side, the management has maintained that it has not seen any cancellation or postponements of projects, which we believe is a positive sign. However, the fact that the IT budgets, which gets finalised by end of December/January every year, have been postponed by one month on account of deeper due diligence by client companies, makes us a bit cautious on the demand environment. On the supply side, the company for next year has already made 18,000 campus offers as against 12,000 for the previous year indicating that the deal pipelines is robust. More so when the company has concluded 9 multi million transformational deals in this quarter.

Finally, while the results have come as a good surprise in adverse macro-economic environment for the tech sector, the fact that volume growth has been slower is a negative. In the long run there can be two things, which can adversely impact the company – decline in margins, and lower volumes. While the fall in margins due to rising costs and appreciating currency can be mitigated, as many operational levers are available, the company has to deal with any pressure on volumes. Infosys changed the industry dynamics when it pioneered the global delivery model and now when most of the factors are against the industry as a whole, we expect it to repeat with something new, which will bring on a paradigm shift for the industry again.

To Read the Full Story, Subscribe or Sign In


Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

INFOSYS LTD SHARE PRICE


Feb 23, 2018 (Close)

TRACK INFOSYS LTD

  • Track your investment in INFOSYS LTD with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks

INFOSYS LTD - KINGDEE INTER. COMPARISON

COMPARE INFOSYS LTD WITH

MARKET STATS