They may have beat last quarter’s headline revenue and earnings guidance (though apparently missed market expectations), but second-ranked India-based IT/BP services firm, Infosys, turned in its worst quarterly operating margin for 5 years (26%). Management also in effect signalled a revenue slowdown by failing to raise FY revenue growth guidance, which remains at 19%, though they did raise FY earnings growth guidance from 9% to just over 10%. Revenues for Q1 FY12 (to 30th June) rose by 23% yoy (4.3% qoq) to $1.67b. At constant exchange rates (CER), top line growth was 19% yoy and 3.1% qoq.
Infosys’ problem is basically with cost of sales (i.e. salaries), with gross margins down 230bps yoy and 280bps qoq to 38.8%, also a 5 year low. It is perfectly usual for Infosys (and peers) to take a margin hit in the June quarter as many players do their salary hikes in April. But this hit is far greater than typical.
I have since worked through the numbers, spoken to management, and have posted an update for TechMarketView subscription service clients in UKHotViews Extra. This still looks significant!