Buyback never on the cards but Infy still keen on acquistions

Wage hike only in Oct, buyback was never considered

10:30 am SD Shibulal, Infosys CEO said the company has not incorporated any wage hike in Infosys for now. "We will revisit the decision to give wage hikes if any in October," he said. Infosys announced a wage freeze last quarter and said it would review the decision depending on performance. But with below par results despite a falling rupee, it is unlikely that the freeze will be lifted any time soon. Last month, Infosys delayed bringing on board some of the 28,000 engineers hired from campuses to as late as July 2013.

Meanwhile, all the buzz about Infosys' Rs 2,000 crore buyback plan can be put to rest as the management dismissed all rumours and said that the share buyback was never on the cards.

However, the company stressed the importance of inorganic growth and said it is still scouting for acquisitions.

Visa expenses, contract cancellation causing Infy pain

10 AM : Infosys MD Shibulal says FY13 revenue guidance has been cut because of currency fluctuations and the current business environment in the US and Europe. Moreover, the company is facing difficult visa norms and is being forced to spend more on visas to ship techies to the US. Hence the rise in visa expense and employee cost resulted in a decline in margins in the first quarter of the financial year 2013.

Infosys also lost around $13 million because of currency fluctuations as the rupee depreciation gains were offset by pricing declines and $15 million was written off on a transmission project in Europe as a prudent measure which resulted in a fall in revenue. However the write-off was a one-off and the company does not expect any more order cancellations. Pricing in the first quarter dropped 3.7 percent on a sequential basis.

However, for the first time the company did not give a guidance for the second quarteron unclear spending from clients. The management defended the move and said it was not in a position to give a quarter on quarter guidance because the global economic situation is extremely volatile at the moment. Quarter guidance will only be provided with the business environment stabilises globally.

The management also maintained that there was no uptick in the attrition rate during the quarter. The attrition has grown to 14.9 percent against 14.7 percent quarter-on quarter

The company expects a 9.5 percent volume growth this year.

Does Infosys weak growth forecast mean best is over for IT?

9:00 am Infosys' net profit for the first quarter of financial year 2013 came in below expectation at Rs 2,289 crore against a CNBC-V18 expectation of Rs 2,248 crore.

Infosys' results are important because being the first major company to report its results, Infosys results give an indication about the trend in IT sector, which generally reflects the overall economic sentiments, as their businesses depend a lot on spending power of companies across the sectors.

The company's dollar revenue came in $1752 million against the company's guidance of $1771 million. This is the most important number for analysts because IT companies earn in dollar terms.

The Infosys stock plunged in opening, down 9 percent while the Sensex opened 187 points lower at 17299 levels as investors are clearly disappointed by the IT bellwether's sharp revision in revenue growth forecast.

Meanwhile, the company's FY13 revenue is seen at $7.34 billion, an increase of 5 percent vs earlier estimate of 8- 10 percent increase. Street was expecting a 1-2 percent cut in the dollar guidance mainly due to cross currency impact (Appreciation of US dollar against Pound, Euro and Australian dollar).

Consolidated sales rose to Rs 9,616 crore in the June quarter against Rs 8,852 crore in the March quarter.

According to Ankita Somani, Angel Broking Infosys will underperform as there are challenges in IT spending but Infosys is not strategically coping with it. "Infosys is stuck on protecting margins. Like TCS has been able to shift gears by increasing exposure to emerging economies in Latin America and Asia, we do not get a similar sense from Infosys" he said.

Infosys scaled down its FY2013 yearly guidance and expects revenues to be atleast $7.343 billion, growth of 5.0% yoy as against expectations of 6-8%. Somani believe this clearly indicates challenging visibility in the business volumes and management's future expectation. "Overall the results were gloomy with guidance numbers indicating that management is seeing challenges in terms of IT spends from big accounts. We will further downwardly revise our estimates for FY2013 being cognizant of the effect of disappointing guidance and uncertain macros. The stock has corrected significantly in the early trade today, so keeping that in notice, we maintain Accumulate rating on the stock."

The guidance cut is largely on cross-currency movement. While the dollar revenues are flattish, growth in rupee terms may be helped by the currency's depreciation. Infosys is expected to benefit from an 8.5 percent fall in the rupee during the quarter. However, analysts see some negative cross-currency effect due to the move in the euro and British pound versus the US dollar.

"Our focus on Infosys 3.0 and building tomorrow's enterprise coupled with disciplined execution will help us deliver high-quality growth, despite challenges seen in the global economic situation resulting in slower IT spends by large corporations," said SD. Shibulal, CEO and Managing Director.

Infosys hired 51 clients during the quarter, where as 1,157 additional employees were added, taking the total headcount to 1,51,151 as on June 30, 2012. However campus recruits at Infosys are definitely having to wait longer before they come on board and more employees are squeezing together on the bench.

The company's first quarter growth from banking, financial services and insurance declined by 0.16 percent, from Rs 3037 crore in the previous quarter. This is bad news for the IT industry as a whole because banks, which will win no popularity contests with voters and politicians in the US and Europe, are cutting back on IT spending in areas like capital markets and investment banking. Infosys was chasing big deals worth around $2-3 billion. Now the big question is what the company would do in the acquisition space.

It is clear that the prevailing global economic uncertainty, cutthroat competition for a bigger share of the outsourcing business and sharp currency fluctuations have slowed the showpiece sector's pace of growth.

Highlights

• Consolidated results under International Financial Reporting Standards (IFRS) for the quarter ended June 30, 2012

• Revenues were Rs 9,616 crore for the quarter ended June 30, 2012; YoY growth was 28.5%

• Net profit after tax was Rs 2,289 crore for the quarter ended June 30, 2012; YoY growth was 32.9%

• Earnings per share (EPS) was Rs 40.06 for the quarter ended June 30, 2012; YoY growth was 32.9 percent

According to Devang Mehta of Anand Rathi Securities, TCS has taken over the belwether tag from Infosys which is probably why it has decided to announce its results on the same day as Infosys.

TCS, however, still remains the best relative play in the near term for investors wishing to protect a downside in an uncertain and difficult market but the company's revenue and earnings growth are not really translating into cash flows.

AFP

"The rupee depreciating is not a reason good enough to play these stocks, as the outlook in terms of overall demand remains weak," Apurva Shah,head of research at BNP Paribas Mutual Fund, which manages investments of about $750 million, including in the top Indian IT companies, said.

Infosys in April had forecast 8-10 percent growth for the fiscal year ending March 2013, already disappointing investors enough to cut 13 percent of its market value on the day. It has gained about 2 percent since.

The National Association of Software and Service Companies, or NASSCOM, an industry lobby, expects the industry to grow exports by 11-14 percent in the current fiscal year that ends in March.

Customers continue to hold back discretionary spending due to the extended eurozone crisis and the absence of unequivocal data that an economic recovery is under way in the United States, the Indian providers' biggest market.

"Hopes of a recovery in the second half are just that, hopes," said Apurva Shah.

Due to the continued uncertainty in the demand environment and discretionary spending not coming through, the fund was "underweight" on the sector, Shah said.

The sluggish global economy is prompting clients to demand more for every dollar spent. This adds to the pressure on billing rates on a commoditised set of services that Indian firms, competing with Accenture and IBM rely on for the bulk of their revenues.

"The depressed situation in the west appears to continue to be of concern, but the hope is that they will recover slowly," Tata Consultancy Services Chairman Ratan Tata said at the company's annual shareholder meeting on June 29.

Shares of Infosys, which has a market value of about $25 billion, are down about 11.5 percent this year, while those of top-ranked TCS are up about 8.7 percent. By comparison, the Sensex has gained about 13 percent.

A weaker first half may have been factored in by the street, but "hopes for recovery in 2HFY13 are fading fast," Bhavin Shah, chief executive of Equirus Securities, said in a July 2 report. He has an "underweight" rating on the IT sector.

For the June quarter, analysts expect little or no sequential dollar-term sales growth for Infosys. The company may say sales grew 0.5 percent, Deutsche Bank analyst Aniruddha Bhosale said in a note. Bhosale, who advises clients pick TCS, expects it to report sequential growth of 2.6 percent.

With inputs from Reuters