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Infosys: Meets expectations

Apr 10, 2002

Infosys has posted a sequential (QoQ) topline growth of 3% for 4QFY02 and net profits have grown by 2%. This translates to a YoY growth (compared to 4QFY01) of 21% in revenues and a 16% in bottomline. The numbers are in line with the market expectations. The revenues for FY02 have grown by 37% and the net profit figure has risen by 29%. The company’s operating margins declined by 0.7% in 4QFY02, QoQ. This is due to the pricing pressure that the company has been witnessing. The billing rates have declined by 4.8% in 4QFY02 as compared to 3.2% in 3QFY02. During the quarter the company saw a volume growth of 6.3%. For the full year FY02 operating margins declined by 0.3%.

(Rs m)3QFY024QFY02ChangeFY01FY02Change
Sales 6,608 6,801 2.9% 19,006 26,036 37.0%
Other Income 149 233 56.3% 594 66411.9%
Expenditure 3,934 4,094 4.1% 11,357 15,660 37.9%
Operating Profit (EBDIT) 2,675 2,707 1.2% 7,648 10,376 35.7%
Operating Profit Margin (%)40.5%39.8% 40.2%39.9% 
Interest - -   - -  
Depreciation 413 448 8.4% 1,129 1,607 42.3%
Profit before Tax2,4102,4933.4%7,1139,43432.6%
Tax 350 389 11.2% 727 1,354 86.3%
Provision and contingencies - -   (98) -  
Profit after Tax/(Loss) 2,060 2,103 2.1% 6,288 8,080 28.5%
Net profit margin (%)31.2%30.9% 33.1%31.1% 
Diluted number of shares 66.1 66.1   66.1 66.1 
Diluted Earnings per share*124.7127.3 95.1122.2 
P/E (x)  29.1   29.7  
*(annualised)      

Revenues of the banking business unit of the company have grown by more than 100% during the fiscal to touch Rs 1 bn (US$ 20 m). The client list for Infosys’ banking product Finacle includes ABN Amro, IDBI Bank and ICICI. The company also acquired a CRM (customer relationship management) product called SimpleRM for a price of Rs 48.5 m (US$ 1 m). The product will be integrated with Finacle and will thus enhance its functionality.

The company added 29 new clients during the quarter as compared to 33 clients added in 3QFY02. The list of clients added during the quarter includes Cardiff, Daimler Chrysler and Fujitsu. Among the telecom clients the company continues to face weakness especially in the equipment manufacturer segment.

Infosys also made an investment of US$ 5 m (Rs 24.5 m) in separate company that will have interest in the area of business process outsourcing. The initial focus is likely to be in the area of transaction processing and accounting services. While the markets are concerned about Infosys moving into low margin business, the company’s management expects margins from the new initiative to be on the higher side. The new company is likely to start generating revenues from the first two quarters of its operations. Client acquisitions is likely to be easy as Infosys has a huge client base to which it can market its services in the business process outsourcing space.

The company also forayed into the IT outsourcing space by taking over the management of applications for two of its clients. According to one of agreements the company will provide 24x7 support to mission critical applications for a financial services company from India. While this will not only help Infosys deepen its relationship with the client, it will help the company tap the huge outsourcing market. The outsourcing contracts run in hundreds of millions of dollars as spread over several years. (Read more)

FY03 guidance
For 1QFY03, Infosys expects a sequential topline growth in the range to 1%-2%. The EPS for the quarter is expected to be in the range of Rs 31 to Rs 32. This translates to a sequential growth in the range of –2% to 1%.

The company expects revenues to grow in the range of 18% to 22% and the net profit figure is expected to rise by 16% to 19% for FY03. The EPS is expected in the range of Rs 141 to Rs 145 for the next fiscal. At the current market price of Rs 3,698 the stock is trading at a P/E multiple of 25x its FY03 earnings guidance.

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