Infy results had come out yesterday and we do a chart thing with them:
Revenues up 7.03% : The Only Good Thing About Results
Profits are up 5% yoy but down 2% quarter on quarter. The only metric that works for them is quarter-on-quarter revenue growth.
EPS Growth, Too, Falls
Earnings Per Share has grown 5% year on year, after showing more than 20% growth last year.
Employee Growth at 11%, Utilization at 80%
Infy seems to have fixed the falling utilization rates and bumped it up to 80%, which means they have little scope for more productivity. (Yet, their profits fell quarter on quarter, which tells you how much of a problem this is!)
Employee net addition year on year is 11% which is probably how much their revenue will grow next year. Given that they don’t have much room for increased productivity, they will have to bank on:
- higher billing rates or
- higher USDINR conversion rates.
The first is based on pricing power which Infy cannot command today. The second is a prayer, not even hope.
Profit Metrics Fall Further
While increased headcount may be a factor, it’s true also that their profits per employee have dipped to the lowest since July 2013:
Our View
We have no positions on the stock. However this is not really a strong performance, and in my view the 10% upmove that we saw on Tuesday was just temporary. Almost like the market was looking for just about any good news.
The guidance is for a revenue hike of 11-13%. That probably still means low single digit profit growth. For that, a P/E of 20, which it commands, is unsustainable and has been so for a long time.
Infy however might still be the best of the IT pack when it comes to performance. The rest are likely to do even worse. We’re not bullish on large IT services companies and nothing in this report has helped change that view.
