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Infy beats expectations

Jul 10, 2003

Infosys has announced a 6% growth sequentially in its topline for 1QFY04 thus surpassing its projections and market expectations once more. Also, the profit growth for the company has been 7%, sequentially, for the quarter. On a YoY basis, the company’s revenues are up 41%. The growth on the profits front has been significant considering that the company had given a guidance stating a 1% sequential fall in net profits for the June quarter.

Rs m 4QFY03 1QFY04 Change
Sales 10,199 10,820 6.1%
Other Income 274 324 18.5%
Expenditure 6,795 7,337 8.0%
Operating Profit (EBDIT) 3,404 3,483 2.3%
Operating Profit Margin (%) 33.4% 32.2%  
Interest - -  
Depreciation 528 443 -16.1%
Profit before Tax 3,150 3,365 6.8%
Extraordinary items 0 -64  
Tax 560 520 -7.1%
Profit after Tax/(Loss) 2,590 2,781 7.4%
Net profit margin (%) 25.4% 25.7%  
No. of Shares 66.2 66.2  
Diluted Earnings per share* (Rs) 156.5 168.0 7.4%
P/E Ratio (x) 23 22  
(* annualised)      

The strong growth in topline has been brought about mainly by a 9.6% rise in volumes. Billing rates have however fallen by 1.9%, thus paring topline growth marginally. However, this decline on the pricing front is less severe than the 5.1% sequential decline that was witnessed in the last quarter. This may be indicative of the fact that Infosys has been able to restrict the fall in billing rates even when the clients are tightening their purses on account of the economic slowdown. However performance of another quarter may clear up this aspect further. Also significant is the fact that Infosys added 22 (28 in 4QFY03) new clients during the quarter and maintained the high percentage of repeat business (98%).

The company’s operating expenses continues to rise as it readily makes increased investments in people and selling and distribution channels. During 1QFY04, Infosys added 1,739 employees to its rolls to take the total number to 17,095. The company anticipates increased demand for its services and this is the reason for its investments in manpower and systems. As bigger size contracts are expected to flow in, Infosys seems to be in a position to meet clients’ demands.

The company has given a EPS guidance of Rs 42 for 2QFY04, which translates to an EPS growth of 16% on an annualized basis. This is higher that what the management had projected while announcing its FY03 results. While the management of Infosys continues to adopt a conservative stance, they are likely to outperform for once more. The company expects the topline to grow by around 1% sequentially for 2QFY04, and by 22-24% for FY04. However margin pressure is likely to continue given that fact that Infosys continues to invest in people and infrastructure to meet increased demand going forward.

At the current market price of Rs 3,645, the stock is trading at a P/E of 22x its FY04 annualized earnings. The stock has however gained around 11% today, and investors seem to have given the company a thumbs up for their performance during the quarter, and more on account of the growth that the company is likely to witness going forward.


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