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Infy Drops 20% on Results, See Them in Charts

The Infosys Stock is down over 20% today as results came in. As I mentioned (Chart of Infy on result days) the stock was expected to be volatile – and I ended up closing a good profit on some put options I held.

The results aren’t quite so bad, but expectations were too high. After all, with the dollar at 54, one doesn’t expect a software exporter to be doing badly. Let’s take a look, in some charts.

Revenues are flat (QoQ) and Profits have been flat

Infy Revenues and Profit

(Click for larger image)

Note that profits, at about 2,400 crores, are nearly at the same level as the March 2012 quarter (3% up) but more importantly that profits have more or less flattened out. Revenue growth in the last quarter of the year has been very little, despite a global market recovery (in the stock market, at least).

P/E to Growth now Greater Than 1

Infy EPS Growth and P/E

Even as the stock goes down, the P/E remains high at 14+ (Trailing 12 month). The 12 month EPS growth is down to 13.3% which after four quarters is actually lower than the P/E.

Employee Growth Stunted

For a company that needs to hire more to make more money, employee growth has been very low. Inspite of hiring nearly 9,000 people in the quarter, attrition is so high that only 1,059 people were added this quarter – the difference is attrition.

Infy Employee Data

This is the lowest net-addition number since Jun 2010.

Lower Focus on North America

North America’s share of business has been steadily declining, which might have impacted the lower numbers – the US seems to be recovering versus Europe, and the mix has gone in favour of Europe by 5% in the last three years.

Infy Geography

Future guidance is also for a weak 6-10% growth in revenue. Considering they’ve not raised salaries for a while, they might have to this coming year, so it is likely margins are hit some more. In general, not a very exciting quarter, but honestly, with Infosys, that’s not something new.

Disclosure: I have no further positions.

  • Inder says:

    And all the experts tell Retail Investors should invest in large cap stocks.
    If a large cap stock shows 20% variation on either side on the result day, how can retail investors be investing their savings in stocks ?

  • ElectroV says:

    Stop, hey, whats that sound,
    Everybody look whats going down..

  • Adheer says:

    A couple of my interesting ratios are Average Revenue per Employee (ARPE) and Average (Net) Profit per Employee. (APPE). (Maybe I unknowingly invented these ration?)
    When you compare these ratios across companies within the same sector you may come up with interesting observations. Companies with high APPE are on the leading edge of the technology curve – doing work in cutting edge (or engineering) areas where competition is little, revenue streams through patents and royalties, top-quality products.
    Lower ratios suggest more focus on outsourcing, lower-end projects.
    Also consider top US tech companies – Google, Apple, Yahoo, Microsoft, IBM and Oracle. (product / service driven companies in the software arena) – using the operating income ratio. You will notice Google and Apple have high APPE compared to others – which reflects their commitment to technology and innovation. IBM and Yahoo have moved to the bottom.
    Although Indian IT industry is supposedly “high-skilled” it is low margin when you compare these ratios with banking, banking outperforms IT.
    Infosys generated Rs 5.7L and TCS generated Rs 4.9L profit per employee, whereas ICICI Bank generated nearly Rs 10.5L and HDFC Bank generated nearly Rs 8.0L per employee.
    Does it mean an average graduate working in a bank is nearly 50% more efficient (in product profit) than an average IT skilled worker ? (Just kidding).

  • Guruprasad V says:

    On Thursday it was inching near to 52 week high and on Friday it got crashed and has gone below its 200 day SMA which means trend is completely down. Mid caps and small caps has seen their carnage and its now left to Large caps. I guess this is just a beginning. I’m happy that Infy management has atleast told the truth about environment of its biz. I believe trend is completely down and trends are sometimes so fierce that would make more intelligent people to get trap into the game.