when is the earnings call?

            Conference Call      
          Infosys
EBIT margins are expected to fall by 200bps in Q1 FY13 and between 50-100bps in FY13


Infosys Technologies (Infosys) held its conference call after it announced its Q4 FY 2012 and FY12 results. SD Shibulal, CEO and Managing Director and V Balakrishnan, CFO, along with other members of senior management team addressed the call.

According to management, Q4 has been a challenging and difficult quarter for the company and this is the new normal where the environment is volatile. There has been delay in contract closures due to slow decision making.

The company normally has 95% visibility for the quarter and 65% for the year. First two months of the quarter were okay but not great but last month saw confluence of events including no ramp-ups as well as ramp downs especially in Financial services and North America which resulted in revenue miss against the guidance for the quarter. There was also leadership changes in some key accounts.

There is greater dependency on discretionary spend as more than 30% of revenues are from Consulting and System integration and average life span of the discretionary spend is about three-four quarter and every quarter there is a review.

There are lesser regulatory requirements for Financial services clients as compared to earlier expectations, hence there is lesser spending. Also, there is now zero base budgets and being set on monthly basis.
IT budgets are expected to be flat to marginally down.

There is good visibility on budgets but very low visibility on spending.

Pricing is expected to be stable and growth is largely expected to be volume based.

The company plans to hire 35000 professionals in FY13 which includes 13000 for BPO.

Tax rate is expected to be 28-28.5% for FY13 as compared to current 28% and CAPEX is expected to be Rs 2000 crore.
Pricing declined 1.1% sequentially but grew 4.7% on y-o-y basis. Volumes declined 1.5% q-o-q but grew 11.1% y-o-y.

EBIT margins declined by 1.1% during Q4 to 29.8% from 31% due to currency as rupee appreciated by 2.7% from Rs 51.37/$ to Rs 49.96/$.

However, as rupee depreciated 5.6% during FY12, there was 2.3% positive impact on margins which was negated by 4% decline in utilization apart from increase in other costs.

The quarter saw 5 deal wins including 3 large ones, greater than $100 million. Also, three of the large deals were from US. There were also 7 business transformation wins.

Product, platform and solutions which is sticky and non linear business contributed around $25 million in revenues and exceeded $350 million of TCV for full year.
EBIT margins are expected to fall by 200bps in Q1 FY13 due to visa costs and onsite hiring of 1200 professionals and between 50-100bps in FY13 entirely due to fall in utilization as hiring may exceed growth. The guidance does not factor in increase in salary.

Operating cash flow to revenues stood at 25% and Return on capital employed at 40%.

The company has hired 1200 onsite professionals during last 18 months.

The salary increase has not yet been finalized which will be decided during middle of year.

In US, there is resurgence in manufacturing due to low fuel costs and it is confident in Financial services.

There is traction seen in Consulting and Products, platforms and solutions.

Overall, steady growth is seen in Europe while situation is daunting and challenges still there. There has been fall in retail sales and shrinkage in manufacturing even in Germany. Financial services is getting into stable mode. Some IT budgets are down 5-10% and very few are down even 20%.

Dear FutureBull,
The whole model of staffing using manpower doing discretionary projects is under stress. IT companies have been greedy and never invested in future capabilities, products, strategic domain consulting. they do lowest end of the work in any MNC organization. As the differential in billing/salary rates is too high, they have been enjoying this arbitrage. If they had to work in a competitive environment like manufacturing, most of these would have closed down by now. Infosys, the company with 20,000 crores in cash, is not willing to come out with US banking version of Finacle (the only respectable Indian IT product), because that needs substantial investment. From 1986 to 1997, Finacle unit was in loss but Nandan persisted with it and got handsome results. Now every management wants only higher revenue/profites on Q-0Q basis with zero investments. This is resulting in implementation failure in US.

But this is the story of only product that we got. Apart from that, all other IT companies including Infy are shy of any investment in domain knowledge, client's business knowledge, deep technical expertise, only thing they know is to hire. How will the business grow over longer term? Been here for long, could not change mentality of zero spend on knowledge and higher profits. 20000 crores is idle cash and not even 2000 being spent in building future strategic capabilities. Where do you see this blindness?

In another 5 years, Indian offshoring IT WILL DIE. May be start ups will make change the landscape. May be not. But current operating strategy of Wipro, TCS, INFY is dying. May be Cognizant will survive a little longer.


Edited by vasantcool - 13/Apr/2012 at 11:18am

Vasantcool , this is an extremely uncharitable analyses of Indian IT industry....they have done great work...even in case of Infy (and some others like Wipro etc) they are doing some cutting edge research ...why you think Airtel chose Infy i/o IBM who has been handling its rest of outsourced effort....please make effort and read about them rather than just comment ...yes there is a huge amount of work on Arbitrage ..so why not...opportunity goes to the lowest bidder ...like water seeks out low levels on its own...its business...

even Infosys has got affected...as some decision makers in its clients may have taken a view that there is no diff b/w a TCS, HCL , INFY etc ...but Infosys doesnt take contracts which give it less than 23% net margin....peace..and many other things like these

none of these will DIE in 5 years ...they will become much larger and more mature businesses ..where big time money making for investors wont happen...