Infosys, the second largest listed IT company in India, reported numbers that fell short of market expectations. Analysts feel that this may raise questions on the demand for IT services in the coming quarters
Infosys shares fell by over 13% on Friday due to the company’s disappointing fourth quarter results. According to analysts, the lower-than-expected results and guidance for next quarter declared by the company will re-ignite fresh debate on structural issues with Infosys and also questions the demand for IT services going into next year.
Infosys shares closed 12.6% down at Rs2403 on the Bombay Stock Exchange, while the benchmark Sensex ended 1.37% down at 17,094.
For the quarter to end-March, the IT company, reported a net profit of Rs2,316 crore compared with Rs1,818 crore a year ago period. Infosys' total revenues increased 22.1% to Rs8852 crore from Rs7250 crore same quarter last year. However, on a quarter-on-quarter (q-o-q), its net profit and total revenues declined 2.4% and 4.8%, respectively.
In a press release, SD Shibulal, managing director and chief executive, Infosys, said, “The year ahead looks challenging for the IT services industry, with slow recovery in the global markets. We are executing on our Infosys 3.0 strategy which is meant to deliver high quality growth in the medium to long term. We are making investments and have put in place a structure to deliver on this strategy.”
Infosys results disappointed on the back of a miss in the March quarter, on both topline growth as well as margins, which showed a steeper decline than expected. "We are not worried on the structural debate regarding off shoring—concerns resurface with every weak quarter. The company's performance is volatile and management's ability to predict this performance has become less accurate in the face of poor visibility in the macro environment. We expect this to continue for some time and hence continued pressure on the stock," said Barclays Capital in a research note.
Other Indian IT companies, notably TCS, have also indicated that the March quarter could be weaker than earlier expectations and hence similar issues though magnitude may differ could be plaguing the entire sector.
“We had a very difficult quarter with revenues declining sequentially. The global currency market volatility continues to be a challenge for the industry. Our focus on high quality growth coupled with strong financial discipline helped us to deliver on EPS guidance in US dollar terms,” said V Balakrishnan, Member of the Board and chief financial officer.
"We would wait for volatility around results to subside. Infosys remains India's premier IT services company, although it faces a tough short-term, in our view. Strong balance sheet, good cash flows and the high corporate governance of the company are other attractions," Barclays added.