ET INTELLIGENCE GROUP: The December quarter performance of Infosys was a mixed bag.
While revenue and profit growth was broadly on expected lines, the operating margin was below the Streets expectations and there was no visible revival in the major verticals of financial services and retail, which together contributed 47% to the total revenue in the quarter.The favourable outcome of the internal audit committee regarding the whistle blower allegations will be a near-term positive for the stock.
The audit committee assisted by an independent legal counsel has concluded that there was no evidence of financial impropriety or misconduct by the companys executives.While this would settle the doubts in the minds of investors for the time being, it would be prudent for them to know that the Securities Exchange Commission (SEC) in the US where the companys depository receipts are listed, continues to investigate the matter.
Infosys also faces class action lawsuits by stockholders in the US.
In addition, Indian regulatory authorities have sought information from the company on the matter.On the operating front, the company reported a strong $1.8 billion worth of large deals for the December quarter.
The employee attrition rate at 19.6% fell for the second consecutive quarter.Revenue from the fast growing digital offerings rose by 40% year-on-year.
It formed 40.6% of the total revenue of $3,243 million compared with 31.5% in the yearago quarter.An analysis of the trailing 12-month (TTM) incremental revenue in dollar terms in each of the past few quarters reveals that the company has shown a sustained momentum since the September 2017 quarter when it had hit a low of $558 million.Over the next two years, it gradually grew to $1.1 billion in the December 2019 quarter.
The year-onyear growth rate of the TTM revenue also improved to 9.5% from 5.6% in the said period.What may cause some concern is the continued weakness in the finance vertical, which constituted 31.5% of the total revenue in the third quarter.
It revenue grew at a slower pace of 6.2% year-on-year compared with the 10.3% growth in the previous quarter.
Against this backdrop, the marginal upward revision in the companys FY20 revenue guidance at constant currency to 10-10.5% growth from the earlier 9-10% growth may not prompt analysts to make major revisions to earnings estimates.The stock recovered to Rs 738.3 on Friday from Rs 643.3 on October 22 in a reaction to the whistle blower complaints.
It was trading above Rs 770 before the allegations.
The audit committees report on Friday denying any wrongdoing by the executives and the robust new business may help the stock to reclaim this level in the short term.Whether it is able to sustain it will depend upon measures taken by the company to improve operating profitability and revive the growth of finance and retail verticals.