Trade Nivesh Infosys has guided for 7.5-9.5% revenue growth
in constant currency terms in FY20
Infosys operating margin in the March quarter dropped 3.2
percentage points from a year ago to 21.5%
Infoysis | TCS
IT major Infosys reported a mix bag of fourth quarter
numbers, with margins coming in below expectations even as revenue came
in-line. Infosys also reported strong large deal wins during the quarter which
came in more than $1.5 billion. Infosys’ guidance for this fiscal starting
April 1, 2019, came in below the Street’s estimates. Infosys shares fell nearly
4% to ₹719 in early trade while shares of TCS, which also reported Q4 earnings
on Friday, rose 3% ₹2,076. In comparison, the stock market index Sensex waS
Coming back to Infosys fourth quarter numbers, Infosys
reported strong 2.1% sequential rise in constant-currency revenue, underscoring
strong execution and strong order inflows. This is the second successive
quarter where Infosys has achieved more than 10% growth year-on-year in
constant currency. The Bengaluru-based company said it signed large deals of
$1.57 billion during the quarter, taking the cumulative size of deals won to
$6.28 billion for the full year. This is twice that of FY18.
In this context, many analysts say that the growth momentum,
which picked up in FY19 will continue in FY20. So, they view Infosys’ guidance
of 7.5-9.5% growth in constant currency terms as conservative.
“We believe the IT major is being conservative in terms of
its revenue guidance for FY19, which is slightly below what we were expecting
(8-10%)," Reliance Securities said in a note.
In terms of profitability, Infosys operating margin in the
March quarter dropped 3.2 percentage points from a year ago, to 21.5%, led by
wage hike impact and possibly costs related to large deal integration, This was
below the Street’s estimates. The company also expects margins to remain
suppressed in FY20 as well, guiding for in a range of 21-23%.
Analysts also remained concern over rising attrition, which
was above 20% in March quarter. “Attrition remains a bug-bear. This is an area
that Infosys needs to focus given major digital talent shortage and attendant
margin pressure due to wage cost inflation," Reliance Securities said in a
note.
Investors also need to be mindful of the softening business
environment, say analysts. Slowdown in the business environment in key
geographies could compel customers to delay execution, potentially delaying
revenue accretion, warns Nirmal Bang Institutional Equities.
Sanjiv Bhasin, executive VP for markets and corporate affairs
at IIFL, said going forward, margins of IT companies could remain under
pressure due to pricing pressure on commoditised services, rupee headwinds and
wage inflation due to higher onsite hiring though volume growth may remain
strong. "Technology has been an over-owned sector but going forward we are
more optimistic on domestic cyclicals that can offer better value
propositions," he said.
Tata Consultancy Services Ltd (TCS), India’s largest IT
services company by revenue, ended fiscal 2019 with double-digit revenue growth
as the company reported a 11.4% growth in constant currency terms in the fiscal
ending 31 March, the company said in a statement. For the March quarter, TCS
reported a revenue growth of 2.4% from the preceding three months in constant
currency terms. Revenue grew 12.7% from the same period a year ago.
This is TCS' fifth straight quarter of year-on-year
double-digit revenue growth in constant currency terms.
TCS also did well, bagging contracts of $6.2 billion last
quarter, higher than the $5.9 billion of deals it secured in the December
quarter.
The rising cost of business also hit TCS' profitability. Its
operating margin contracted for the second straight quarter. It softened 30
basis points from a year ago to 25.1% in the fourth quarter of FY19.
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