Infosys presages final quarter slowdown

Despite raising its FY guidance, management at Bangalore-based IT services major Infosys is still expecting that revenue growth will slow in its final quarter (to 31st March). In fact, headline revenues in Q3 (to 31st Dec. ’13) at $2.1bn represented slower growth of 9.9% yoy (1.7% qoq) compared to the prior quarter’s 15% yoy (3.8% qoq). Management is now looking for up to 12% FY growth ($8.29bn) vs its prior 10% top-end forecast.

The profit picture looked a bit brighter as management knocked over 2 points qoq from SG&A expenses to 11.1%. This, along with an 80bps qoq improvement in gross margin (36.1%), lifted operating margins to a more respectable 25.0%, compared to the prior quarter’s nadir of 21.8% (see Infosys’ first $2b quarter came at a cost). However, operating margins were nearly a point down on the same quarter last year.

The media got all frothed up about these results with even the usually more restrained FT headlining ‘hopes of (a) sustained revival’, rather missing the point that growth was still slowing and that in any event, one swallow … etc etc. The real issue is whether executive chairman NR Narayana Murthy’s recent top management changes (see More management shuffling at Infosys) are going to restoke Infosys’ boilers which are very much running out of steam.

Mumbai-based offshore services leader TCS reports next Thursday. It would come as no surprise were TCS to increase its market share gap over Infosys. As usual, we'll have much more to write about the India-centric IT services players – including their UK performance – in the next edition of OffshoreViews.