These 3 graphics show why Infosys is confident of meeting its revenue guidance

Shares of Infosys slumped more than four percent in morning trade today after India’s second-largest IT major reported a marginal miss in revenues for the first quarter of the current fiscal, while its all-time high attrition levels remain a big concern for investors.

Experts said investors booked profits after the stock had surged 10.8percent in June. Moreover, they also cited disappointment that volume growth declinedto 2.9 percent in the April-June quarter from 4.1 percent in the year-ago period.

Even though the company has given a second wage hike in a span of nine months and taken a number of initiatives to control attrition such as regular pay hikes, promotions on quarterly basis, reduction of variable pay component for junior employees and, fast track career path for high performers, attrition for the first quarter if FY15 remained stubbornly high at 19.5% as 10,627 employees exit the firm during the quarter.Chief Financial Officer Rajiv Bansal said he expected staff exits to moderate to around 15 percent in the next few quarters.

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But despite the revenue miss, Infosys retained its full year dollar revenue guidance at seven to nine percent, which is way below industry body Nasscom’s 13-15 percent estimate for the full sector.

The three charts below explain why Infosys’ revenue guidance is rather conservative and why it can easily achieve it despite concerns over attrition and management reshuffle:

1. Improvement in margins despite wage hike and visa-related costs

Infosys’ operating profit margin, lower by 40 basis points at 25.1% quarter on quarter, came in as a positive surprise against analysts’ expectations of 23 percent. This was largely due tocost-rationalisation measures, higher utilisation and a 126 bps benefit due to the revaluation of assets according to the new Companies Act.

The operating margingives an idea of how much a company makes (before interest and taxes) on each dollar of sales. So with an operating margin of 25 percent, Infosys ismaking $0.25 (before interest and taxes) for every dollar of sales.

“Infosys’ EBIT margin for the quarter de-grew by 34bp qoq to 25.1%. However the performance is better than our expectation, led by operational efficiency, with inch up in utilization level to 75.8% (74.1% in 4QFY2014) and sequential decline in employee costs.. In addition, the Management indicated that operating margin for FY2015 is expected to be in the same range as of FY2014,” said brokerage Angel Broking in a report.

2.Steep improvement inutilizationwas the key takeaway

For Infosys, IT services utilisation (excluding trainees) came at 80.1% for the first quarter of the current fiscal. Utilisation is a reflection of how efficiently a company uses its staff or a measure of the time spent working as a percentage of their available time on the job. So an 80 percent utiisation implies, Infosys’ employee efficiency is high and the company is not wasting its resources.

And this has been the key driver for margin expansion during the quarter. Infosys has been showing steady improvement in this metric over the past eight quarters.

3. Infosys won five new dealsduring the quarter with a total contract value of $700 million. While three of the largedeals were from North America and one each inEurope and Rest of the world, in terms of verticals, 2 deals were in Manufacturing and one each in BFSI, Retail and Life Sciences.Even the number of clients has risen. Infosys added 61 new clients during the quarter, taking its total active client base to 910. The major client additions happened in the $1 mn dollar revenue club. Only one client was added in the US $50mn + revenues brackets. So while the dealpipeline is better and discretionary spending is also back in some areas, the nature of spend has changed to focus on more smaller deals.

“A lot of projects started at onsite during the quarter, which will ramp up in due course of time. That, combined with the pipeline and deal wins during the quarter keeps the company confident towards maintaining its guidance,” said Motilal Oswal in a report.

Also Infosys saw significant top level exits in FY14. In fact 12 senior managers exited the company since Infosys co-founder Narayana Murthy had returned in June2013 as non-executive chairman. So now with anew CEO,Vishal Sikka at the helm, expectations of a stable management and more client wins are high.

" Conclusion of the CEO selection process with theappointment of Dr Vishal Sikka, former SAP executive board member, for a period of five years bodes well, as it could alleviate ambiguity within (employees) and outside (clients) the company," notedPankaj Pandey, head research at ICICIDirect.