X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 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: Growth in perspective - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Jul 10, 2003

    Infosys: Growth in perspective

    Infosys has over-performed (once again!) its guidance and has grown topline by 6% and bottomline by 7% on a sequential basis. The company has also revised its FY04 EPS guidance from a 12% growth to a higher 16%. While margins continue to remain under pressure, some stability seems to have set in on the pricing front.

    View 1QFY04 Results

    On the margins front, the company is expecting stability due to its cost-rationalization efforts. Also as the contribution of revenues from the relatively high margin services (IT consulting, package implementation, etc.) increases, pressure on billing rates is likely to reduce and consequently further fall in operating margins could be arrested.

    While operating margins may still take a while to stabilize, Infosys continues to be optimistic on the business volume growth front. The company is aggressively recruiting manpower to cater to the anticipated demand for its services. In the June quarter alone the company added nearly 1,700 employees on to its rolls. This optimism is not without reason. Infosys is expecting increased interest from clients in offshoring their requirements to India. Also, as large sized orders flow in, the company will be one of the biggest beneficiaries as it is ramping up its operations to meet anticipated demand.

    The company in order to take advantage of this trend has scaled up investments towards its selling and marketing infrastructure. Selling and marketing expenses have risen by 16% sequentially for 1QFY04. Also, total expenses have increased by 8%, higher than the revenue growth of 6%. On the software development expenses front, the growth of 8% is mainly due to increase in salaries across middle and top-management levels. This salary hike has been done for retaining talent in times when global majors are attracting quality manpower from Indian software companies. This rise in expenses is putting pressure on the margins but we reiterate that it is just a short-term concern. As the company is able to get large sized contracts and move up the value chain, thus making optimum utilization of its investments, pressure on margins will reduce.

    Expending to grow…
    (Rs m) 4QFY03 1QFY04 Change
    Software development expenses 5,298 5,728 8.1%
    % Of sales 51.9% 52.9%  
    Selling and marketing expenses 690 797 15.6%
    % Of sales 6.8% 7.4%  
    General and administration expenses 807 812 0.6%
    % Of sales 7.9% 7.5%  
    Total expenses 6,795 7,337 8.0%
    % Of sales 66.6% 67.8%  
    Sales 10,199 10,820 6.1%

    In 1QFY04, Infosys added 22 (28 in 4QFY04) clients to its list. More important is the fact that the company managed to keep the levels of repeat business at a high (98%). The management is of the opinion that large-size orders are in the pipeline and these are likely to flow in once the uncertainty regarding the global economy clears. Also, as conservatism on the part of clients in outsourcing their business operations to India reduces, companies like Infosys are likely to be the biggest gainers. The increasing competition from MNCs who have been implementing the Indian offshoring model by setting up bases in the country will also increase the veracity of the Indian model and make it more dynamic.

    On the service offerings front, application development witnessed a decline during the quarter. This is likely to be a concerning factor considering that development is a bread-and-butter work for the company and any decline in this segment might hamper growth prospects. However, revenues from all other service offerings continue their growth. Maintenance has shown a significant sequential growth of 9%. In the previous quarter, the sequential growth for this service offering was a mere 0.3%. This signifies the fact that clients are, on account of cost rationalization measures, stressing on maintaining their existing systems and are not spending much on new applications. Notably, Infosys’ revenues from package implementation grew by just around 2% during 1QFY04 (36% in 4QFY03).

    Revenue contribution…
      4QFY03 1QFY04  
      Rs m % of total Rs m % of total Change
    Development 3,182 31.2% 3,008 27.8% -5.5%
    Maintenance 2,682 26.3% 2,911 26.9% 8.5%
    Re-engineering 551 5.4% 725 6.7% 31.6%
    Package implementation 1,438 14.1% 1,461 13.5% 1.6%
    Consulting 398 3.9% 476 4.4% 19.6%
    Testing 377 3.7% 476 4.4% 26.3%
    Engineering services 245 2.4% 281 2.6% 14.8%
    Other services 836 8.2% 1,093 10.1% 30.7%
    Total services 9,709 95.2% 10,430 96.4% 7.4%
    Products 490 4.8% 390 3.6% -20.5%
    Total revenues 10,199 100.0% 10,820 100.0% 6.1%

    The fact that Infosys is moving up the value chain is exhibited by the strong growth (20% sequentially) witnessed in the company’s revenues from consulting segment. Consulting service’s contribution to Infosys’ revenues has also seen a growth, from 3.9% in 4QFY03 to 4.4% in 4QFY04. This augurs well for the company in its move towards treading in the domain of global software services majors. However, high-end services like consulting and package implementation still contribute a miniscule amount to Infosys’ revenues when compared to the contribution they make to revenues of global majors like IBM or EDS. Infosys has realized this fact and is consistently increasing its revenues from these segments.

    Revenues for Infosys’ banking product, Finacle has dropped significantly by 20% sequentially. During the quarter, one major win for Finacle was its selection by the National Commercial Bank of Saudi Arabia for its delivery channels initiative. Also, the company launched Fulcrum - the Finacle User Forum comprising all customers of the Finacle suite of banking solutions in the South Asian region. Finacle is a preferred banking solution for banks in India. However, it has yet to make a mark in the global banking space.

    Outlook

    Infosys has recognition for underpromising and overperforming. And they have done it again for the quarter gone by. Also, the company has revised up its earnings guidance for FY04. It now stands at Rs 168, up from Rs 161-163 that they had announced in their FY03 earnings announcements. More important is the fact that this upward guidance comes at a time when the uncertainty regarding the global economic slowdown still prevails and clients are keeping their purse strings tight. Yet Infosys is anticipating growth going forward and its ramping up on the people and infrastructure fronts indicates this.

     

     

    Equitymaster requests your view! Post a comment on "Infosys: Growth in perspective". Click here!

      
     

    More Views on News

    Infosys: A Decent Start to FY18 (Quarterly Results Update - Detailed)

    Jul 14, 2017

    Infosys starts FY18 on an encouraging note with a stable performance.

    Infosys: A Flat End to FY17 (Quarterly Results Update - Detailed)

    Apr 13, 2017

    Infosys ends FY17 with a 7% QoQ fall in net profit for the March quarter.

    Infosys: A Decent Quarter (Quarterly Results Update - Detailed)

    Jan 13, 2017

    Infosys has reported a 0.2% QoQ decrease in the topline and an increase of 4.6% QoQ in the bottomline for the quarter ended December 2016.

    Tech Mahindra: Our Revised View (Quarterly Results Update - Detailed)

    Aug 2, 2017

    A better than expected turnaround in performance results in a change in view.

    Wipro: A Decent Start to the Year (Quarterly Results Update - Detailed)

    Jul 27, 2017

    Digital services drive growth for Wipro in 1QFY18.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    Proxy Plays: A Smart Way to Bet on 'Off Limits' Companies(The 5 Minute Wrapup)

    Aug 4, 2017

    The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    INFOSYS LTD SHARE PRICE


    Aug 17, 2017 (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 - NIIT TECHNOLOGIES COMPARISON

    Compare Company With Charts

    COMPARE INFOSYS LTD WITH

    MARKET STATS