Infosys: Why shares plunged 8% despite in line earnings

Profit in-line, but sales lower: Infosys Q2 sales came in slightly lower at Rs. 9,860 crore against expectations of Rs. 9,900 crore. However, net profit was in-line at Rs. 2,370 crore against estimates of Rs. 2,372.5 crore. In the June quarter, Infosys had reported Rs. 9,616 crore in sales and Rs. 2,289 crore in net profit.
Dollar revenue misses estimates: Dollar revenue, probably the most crucial matrix for a company earning a bulk of its revenues from overseas, rose to $1797 million from $1752 million in the June quarter against estimates of $1806 million.
Sales outlook disappoint: Infosys retained its fiscal 2013 dollar revenue guidance at 5 per cent. Analysts had predicted Infosys will revise its revenue growth estimate to around 6 per cent for the year to end-March, boosted by its acquisition last month of Swiss consultancy Lodestone. However, Chief Financial Officer V. Balakrishnan clarified that the revenue growth forecast for the current fiscal year does not include the revenue from Lodestone Holding AG.
Earnings per share cut sharper than expected: Infosys pared its fiscal 2013 rupee EPS guidance to Rs 160.61 from earlier forecast of Rs 166.46 in the June quarter. The revision is a function of wage hike and the rupee appreciation, analysts said.
Margins expected to be under pressure: Infosys has announced a wage hike, which is likely to impact full year margins. The appreciation in the rupee will further impact rupee EPS. Operating margins at Infosys Ltd will decline by 200 basis points in the current fiscal year that ends in March 2013 from a year earlier, Balakrishnan said.
Pricing pressure: Infosys's billing rates were down 0.2 per cent from the previous quarter. This indicates that Infosys may be taking some pricing cut to win deals. It also indicates that increased competition might have forces Infosys to lower rates.
BFSI growth under pressure: The share of banking, financial services, and insurance vertical came down slightly to 33.7 per cent against 34.3 per cent in the June quarter. This indicates that the economic uncertainties in US and Europe continue to be a major headwind for Infosys, which derives 80 per cent of revenues from these two geographies.
V. Balakrishnan steps down: Infosys, which has seen a slew of management changes in the last couple of years, said its chief financial officer V. Balakrishnan would give up his position from October 31 and will be replaced by vice president finance Rajiv Bansal. He had been in charge of finance for six years."The departure of the CFO will continue to be an overhang on the stock in the near term, although he is not leaving the company," Ankur Rudra of Ambit Capital told Reuters.
Rupee: Analysts said the rupee is likely to appreciate further, which will limit the upside in Infosys shares.
Brokerages negative in their outlook: JP Morgan said Infosys is some time away from anywhere close to getting its mojo back. Kotak said Infosys’ string of disappointing results continues. UBS said Infosys Q2 was a miss on all counts.

(With inputs from Thomson Reuters)

Profit in-line, but sales lower: Infosys Q2 sales came in slightly lower at Rs. 9,860 crore against expectations of Rs. 9,900 crore. However, net profit was in-line at Rs. 2,370 crore against estimates of Rs. 2,372.5 crore. In the June quarter, Infosys had reported Rs. 9,616 crore in sales and Rs. 2,289 crore in net profit.
Dollar revenue misses estimates: Dollar revenue, probably the most crucial matrix for a company earning a bulk of its revenues from overseas, rose to $1797 million from $1752 million in the June quarter against estimates of $1806 million.
Sales outlook disappoint: Infosys retained its fiscal 2013 dollar revenue guidance at 5 per cent. Analysts had predicted Infosys will revise its revenue growth estimate to around 6 per cent for the year to end-March, boosted by its acquisition last month of Swiss consultancy Lodestone. However, Chief Financial Officer V. Balakrishnan clarified that the revenue growth forecast for the current fiscal year does not include the revenue from Lodestone Holding AG.
Earnings per share cut sharper than expected: Infosys pared its fiscal 2013 rupee EPS guidance to Rs 160.61 from earlier forecast of Rs 166.46 in the June quarter. The revision is a function of wage hike and the rupee appreciation, analysts said.
Margins expected to be under pressure: Infosys has announced a wage hike, which is likely to impact full year margins. The appreciation in the rupee will further impact rupee EPS. Operating margins at Infosys Ltd will decline by 200 basis points in the current fiscal year that ends in March 2013 from a year earlier, Balakrishnan said.
Pricing pressure: Infosys's billing rates were down 0.2 per cent from the previous quarter. This indicates that Infosys may be taking some pricing cut to win deals. It also indicates that increased competition might have forces Infosys to lower rates.
BFSI growth under pressure: The share of banking, financial services, and insurance vertical came down slightly to 33.7 per cent against 34.3 per cent in the June quarter. This indicates that the economic uncertainties in US and Europe continue to be a major headwind for Infosys, which derives 80 per cent of revenues from these two geographies.
V. Balakrishnan steps down: Infosys, which has seen a slew of management changes in the last couple of years, said its chief financial officer V. Balakrishnan would give up his position from October 31 and will be replaced by vice president finance Rajiv Bansal. He had been in charge of finance for six years."The departure of the CFO will continue to be an overhang on the stock in the near term, although he is not leaving the company," Ankur Rudra of Ambit Capital told Reuters.
Rupee: Analysts said the rupee is likely to appreciate further, which will limit the upside in Infosys shares.
Brokerages negative in their outlook: JP Morgan said Infosys is some time away from anywhere close to getting its mojo back. Kotak said Infosys’ string of disappointing results continues. UBS said Infosys Q2 was a miss on all counts.

(With inputs from Thomson Reuters)