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)
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