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Infosys: Disappointing start of the year

Jul 12, 2012

IT services major Infosys Ltd has announced its first quarter results for the financial year 2012-2013 (1QFY13). The company has reported an 8.6% quarter-on-quarter (QoQ) growth in its consolidated sales and a 1.2% QoQ decline in its net profits. Here is our analysis of the results.

Performance summary
  • Sales grew by 8.6% QoQ during 1QFY13. This came on the back of steep rupee depreciation during the quarter.
  • There was a decline of 0.4% QoQ in revenues on constant currency basis. In terms of US dollar revenues, the decline in revenue was 1.1% QoQ during the quarter.
  • Operating margins declined by 1.9% QoQ to 28.0% during the quarter as compared to 29.9% recorded in the previous quarter (4QFY12). This was on account of an increase in cost of sales as well as in administrative expenses which offset the marginal decline in sales & marketing expenses during the quarter (all as a percentage of sales).
  • Lower operating margins and a huge decline in other income led to a 1.2% QoQ decline in net profits during the quarter. The decline would have been more if not for a decline in effective tax rate during the quarter. The effective tax rate was 27.8% during the quarter as compared to 29.8% seen during 4QFY12.
  • The company added 51 new clients during the quarter taking the total number of active clients to 711.
  • Management has cut down its previous guidance in US dollar terms for the financial year ending March 2013 (FY13). In US dollar terms, the company expects just 5.0% (6% in constant currency terms) YoY growth in revenues for FY13. Earlier, at the end of FY12, it had guided for 8%-10% YoY growth in revenues for FY13, in US dollar terms.
  • However in rupee terms, on the back of recent steep rupee depreciation, the management expects sales to grow by 19.7% YoY in FY13 (guidance was 13.9%-16.0% YoY at the end of FY12) and Earnings per Share (EPS) to grow by 14.4% YoY (guidance was 9.1%-10.9% YoY at the end of FY12).

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