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Infy Sep 2013 Results in Charts


Infy announced Sep 2013 results today. The stock is up 5% which is not nearly as much as it has been in the recent past. However, let’s take a look at the results, like I usually do, in charts:

Revenues up 31% yoy, Profits Flat!

In the wake of the dollar falling nearly 10% in the quarter (56 to 62, averages) and nearly 15% in the year, revenues were up 31% year over year.

But profits have disappointed, growing just 1.6% year on year.

Infy revenues and profits

Visa Provisions of 219 cr.

There is an investigation going on by the US about potential misuse of visas by Infosys, and for that they have allocated a Rs. 219 cr. They’ve been told by the US Department of Homeland Security that there are errors in their I-9 forms, and fines range from $100 to $1100 per such instance. Putting an estimate at aroudn $30 million (which is 200 cr. or so) means there might be a problem with 3,000 to 30,000 such forms, and it’s likely that the fine amount may end up being very different if it is found Infy was wilfully falsifying documents.

Even if you consider there is no fine, the EPS growth, year on year, would go up from 1.6% to 10.9%. This is terribly low for a company for which we give a 20 P/E. Look at the flattening profits over the last few months.

P/E back near 20, Trailing Twelve Month EPS Growth at 2%

In what seems to be a return to innocence, Infy’s gone back to a high valuation for low growth.

Infy EPS and P/E

Markets work in strange ways, indeed.

Employee Productivity Up, Huge Attrition

Infosys has lost over 75% of the 12,000+ people they have hired (probably different people from those they’ve hired, but the numbers are what matter). With a net addition of just 3000 people, Infy has added just 1.8% to the workforce, and they bill largely on headcount.

Infy employees

Productivity can only go up a little more from here – Infosys needs a big bench to survive where it does. From here, they have to up hiring, increase salaries or increase billing to retain margins – none of which is easy in an environment of extreme competitiveness and a massively volatile rupee.

Dividend of Rs. 20

Infy will pay out Rs. 20 per share (approximately 0.66% yield).

My Take

Blah. TCS and HCL Tech are better candidates to play the IT game. But Infy has a lot of cash, and if they lose their extremely conservative founder return, they might actually be able to change the game. (He hasn’t shown the desire to acquire big)

The scary thing right now is the employee attrition and the lack of focus on margins. With Net profits remaining stagnant at some point a good portion of profits will be purely from interest out of retained past profits. Infy also has management issues with going back to becoming a lala company (nothing wrong with that, just that current top people had thought otherwise) and trying to do the NRN magic again which was in a different era of lower competition and customers not really negotiating the rupee/USD equation.

IT though is going though its last hurrah, and will move into a commodity play eventually, unless they really up the ante. Already companies abroad in the IT space are quoting at lower P/E ratios abroad, like IBM (14) or Accenture (15). Other players in that space are more aggressive (TCS, Cognizant, IGate, HCL Tech) and there is the hidden Wipro somewhere as well.

Not long or short the stock. Options were expensive, and the move of 5% hardly justifies them. Technically the stock looks very strong, and even though fundamentals don’t look great, I would trade this stock by the price, not by the results. And the price tells me there is a short term short opportunity, a medium term long opportunity and a longer term short opportunity. Not that this helps you any more than the charts above!


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