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Infosys crash: Just what is hurting the IT major?

By Religare
Infosys crash: Just what is hurting the IT major?
What's hurting the Infosys? The company, which used to be darling of stock markets, almost a safe haven for employees, is now fighting for credibility and confidence while other IT majors like TCS, HCL Tech and Cognizant continue to expand overseas.

The repeated disappointing financial performance tells you that this once-bellwether company is losing its plot. Analysts are debating the cause of crash of India's second largest software exporter at bourses following a run of poor financial results and another weak outlook for revenue growth. Most are now convinced that Infosys is struggling to strike a balance between growth and profitability after a major shift in its business strategy.

On Friday, April 12, Infosys again came to haunt the D-Street by announcing a weak guidance for FY'14 and a flat Q4 net, signaling the tough road ahead for country's USD 100 billion IT sector. Here are the key takeaways from IT giant's Q4 numbers that led the stock plunge 20 per cent in morning trade on BSE:

Flat net profit:

The net profit of the company came in at Rs 2,394 crore, up just 1.1 per cent from the previous quarter. Jan-Mar Q4 net profit was up 3.4 per cent from the year ago period.

Muted revenue growth:

Revenue growth also remained muted at 0.3 per cent sequentially. At Rs 10,454 crore, Infosys' consolidated Q4 revenues were up 18.1 per cent from the year ago period.

Weak guidance:

The confidence in growth continues to be weak. IT major expects 6-10 per cent growth in FY'14, which is way lower than industry guidance of 10-14 per cent. It did not give any guidance on earnings per share (EPS).

Margins drop:

In line with market expectations of Infosys becoming more flexible on pricing of its services, margins of the company fell 13.4 per cent in dollar terms from a year ago.

Low confidence:


Management commentary on the road ahead also spooked investors, sending the stock down by as much as 20 per cent in the morning trade. "Global economic uncertainties remain challenging for the IT industry," said S. D. Shibulal, CEO and Managing Director.

Pricing Pressure:

Infosys said higher volumes growth of 1.8 per cent QoQ in Q4 did not result in higher profits because pricing declined by 0.7 per cent.

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