Tuesday, 13 January 2009

Infosys grows 36% ... or 8% - you choose!

(By Anthony Miller). Rarely have I seen the contrast between international accounting principles and the effect of foreign exchange markets been so apparent in company results. Infosys, which reported its 3Q09 results (to Dec. ’08) this morning, saw revenues grow by 36% yoy under Indian GAAP, but this was just 8% under IFRS. Even at constant currency IFRS, revenues grew just under 15%. Indian investors focused on the local numbers and pushed Infosys stock up 6%, dragging TCS, Wipro and HCL along for the ride. Satyam (as I knew you would ask) is down 7% as I write (7:15 am).

Infosys did well at what it does best – manage the margin. Even under IFRS, Infosys boosted operating margins yet again, to almost 32% (and let’s assume for now we can believe the figures), up 300bps yoy and up 200 bps seq. Frankly stunning, and this was despite adding 2,800 heads. Management is forecasting a small sequential revenue decline in its final quarter.

More after this morning’s concall.
There were a couple of points that came out of Infosys’ concall this morning which have ramifications for all IT services players, though none come as a great surprise.

But first, I asked about the impact the Satyam scandal was having on their business. CEO Kris Gopalakrishnan told me that to some extent ‘trust has been broken’ with customers, but Infosys has not seen any deferrals or cancellations as a result. They are ‘not proactively going after Satyam’s customers’ (how very noble) but are responding to their requests if asked. Indeed, Infosys shares a number of clients with Satyam (as do other Indian SIs) so I would imagine they do get a few such requests! Infosys believes its governance processes are sound but is increasing disclosure to clients when asked. They also said there are no skeletons in their closet. I really hope not.

On a broader basis, Infosys said that customer IT budgets have still yet to be finalised – they expect this to happen by mid-February but even then, these ‘will not be etched in stone’ and could subsequently change depending on company performance and economic outlook. Customers are beating down supplier prices (average pricing was down 2% in constant currency in the Dec. quarter). Infosys is trying to trade prices decreases for volume increases with some (but not complete) success. Pricing pressure is coming from competitors ‘especially where turf is to be protected’.

On the ERP front, Infosys confirmed what we reported in Michael Page, Hays paint grim UK recruitment picture that demand for SAP skills is now off its peak and ‘there are now people available in the market’.

Having said all that, to turn in 15% revenue growth at 30%+ margins in the current climate is pretty impressive. The offshore services story is far from dead.

1 comment:

Diviya said...

Anybody could have skeletons in the closet, but the question currently is - was Satyam really inflating records, or was someone stealing the money!