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Friday, January 11, 2008

Infosys Q3 net up 25%, top-line grew 17%

Bangalore-based India's second largest software exporter, Infosys Technologies, historically has a seasonally-weak third quarter. This third quarter was no different.

Though the company registered a net profit (Indian GAAP) of Rs 1,231 crore for the third quarter ending December 31, 2007 - 25% increase when compared to the figure of the corresponding quarter last financial year - the figure included a reversal of tax provision of Rs 50 crore. The company' share price lost 1.38% to touch Rs 1580.10 on the Bombay Stock Exchange.

The top-line (year-on-year) rose by 17% to reach Rs 4,271 crore. However, on a sequential (compared to the trailing quarter) basis, the revenue increased by a mere 4%. The figure was lower that analyst expectations of a 5-6% top-line growth. The company's sequential net profit, on the other hand, rose by 12%. However, excluding the tax write-back, it grew by 7.4%.

On the other hand, the growth in dollar terms (US GAAP) was decent at 6.1%. Volume growth, aided by price increases proved to be the key driver of the top-line.

Infosys managed to surprise the market with its EBITDA (operating profit) margin expanding by 1.3% sequentially to 32.6%, led by an increase in offshoring and fixed priced contracts, coupled with scale benefits that resulted in reducing the selling, general and administration (SG&A) expenses. Offshore revenues increased from 51.2% in the trailing quarter to 52.2% in the third quarter. The contribution of revenues from fixed price contracts also increased from 29.8% in the second quarter to 32.8% in Q3. Offshore billing rates saw a rise of 1.3%, while onsite rates grew by 1.1% sequentially.

Meanwhile, the earnings per share (EPS) increased to Rs 21.54 from Rs 17.64 for the corresponding quarter in the previous year. The other income was Rs 158 crore as against Rs 154 crore in the second quarter of FY 2008. Infosys has guided towards a growth of 4.8–5.4% in revenues and 5.3% in EPS for the fourth quarter ending March 31, 2008.

The company’s consolidated income has already crossed $3 billion mark ($3.03 billion) and is set to cross the $4 billion mark in consolidated revenue at the end of current fiscal (2007-08) under US GAAP -- projecting 35% year-on-year growth. In rupee terms, it expects to close the year in the range of Rs 16,627 crore and Rs 16,651 crore in revenue, a year-on-year growth of 19.7% to 19.9%.

Downplaying the threat of recession, Gopalakrishnan said, "There is no visibility of the IT budget being impacted by a possible recession or slow down. The environment is positive and growth looks favourable though the macro-environment is challenging. The outsourcing/off-shoring of IT services will continue to grow by 25-30%, as maintained by Nasscom."

Infosys CFO V Balakrishnan said the growth was aided by various factors. "We have seen a 3-4% increase in pricing for new contracts. Even those which have been renewed have been done at higher price point. Contract re-negotiations have been in our favour. The outlook on the pricing front is positive," he added.

Infosys now sits on over $2 billion (Rs 7,933 crore) of cash which gives it a formidable armoury for acquisition. In comparison, its ability to invest on organic growth was limited (Rs 325 crore during the quarter). Unless this cash is not spent on acquisitions, it has to be returned to shareholders.

Q3 figures in a nutshell

* Revenue growth: 17% YoY; 4% Q-o-Q
* Net profit growht: 25% YoY; 12% Q-o-Q
* Growth outlook for FY08: 19.7-19.9%
* Revenue crosses $3 bn in nine months

Infosys expects consolidated income in the Q4 to grow around 19% in the range of Rs 4,477 crore to Rs 4,501 crore.

According to a release issued by the company to the BSE today, the company expects EPS growth of 5.3% on year-on-year basis to Rs 21.38.

For the full-year ending March 2008, the company expects income in the range of Rs 16,627 crore to Rs 16,651 crore - up nearly 20%. EPS for FY08 is expected to be Rs 81.07 - up 17.1%.

(Conversion rate $1 = Rs 39.41)

Posted by Srivatsan at 11:06 PM

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Understanding Short Term Trading

Before I begin, this blog is not for intraday traders. My definition of short term implies duration of around 2 to 3 months.

Short Term stock picking is no rocket science, but rather a visual interpretation of technical charts. A basic moving average on a time frame chart will show the direction of the securities movement.

Moving averages is a mathematical results calculated by averaging a number of past data points. Moving averages (MA) in it's basic form is calculated by taking the arithmetic mean of a given set of values on a rolling window of timeframe. Once the value of MA has been calculated, they are plotted onto a chart and then connected to create a moving average line. Typical moving averages used for short term trading are 50 MA and 100 MA.

Types of Moving Averages

1) Simple Moving Average (SMA)

SMA is calculated by taking the arithmetic mean of a given set of values on a rolling window of timeframe. The usefulness of the SMA is limited because each point in the data series is weighted the same, regardless of where it occurs in the sequence. Critics argue that the most recent data is more significant than the older data and should have a greater influence on the final result.

2) Exponential Moving Average (EMA)

EMA overcomes the limits of SMA, where more weight is given to the recent prices in an attempt to make it more responsive to new information. When calculating the first point of the EMA, we may notice that there is no value available to use as the previous EMA. This small problem can be solved by starting the calculation with a simple moving average and continuing on with calculating the EMA.

The primary functions of a moving average is to identify trends and reversals, measure the strength of an asset's momentum and determine potential areas where an asset will find support or resistance. Moving averages are lagging indicator, which means they do not predict new trend, but confirm trends once they have been established.

A stock is deemed to be in an uptrend when the price is above a moving average and the average is sloping upward. Conversely, a trader will use a price below a downward sloping average to confirm a downtrend. Many traders will only consider holding a long position in an asset when the price is trading above a moving average.

In general, short-term momentum can be gauged by looking at moving averages that focus on time periods of 50 days or less. Looking at moving averages that are created with a period of 50 to 100 days is generally regarded as a good measure of medium-term momentum. Finally, any moving average that uses 100 days or more in the calculation can be used as a measure of long-term momentum.

Support, resistence and stoploss can be infered by referring the closet MA below or above the market price. The other factor that is used in short term momentum is the trading volume. The moving averages along with the trading volume can provide a better insight to short term movement.

Markets are moved by their largest participants - I believe this is the single most important principle in short-term trading. Accordingly, I track the presence of large traders by determining how much volume is in the market and how that compares to average. Because volume correlates very highly with volatility, the market's relative volume helps you determine the amount of movement likely at any given time frame--and it helps you handicap the odds of trending vs. remaining slow and range bound.