Infosys ignites the minds and markets

The medium to long term outlook for the tech sector may be weak. But Infosys managed to meet the street expectations as it posted a rupee revenue growth of 6.3% qoq in Q4 FY08. Volume growth was modest at 4.9% qoq while pricing improvement was negligible. Slow growth was witnessed in the US region along with a material de-growth in banking and financial services segment. EBITDA margin was stable qoq at 32.5% aided by SG&A leverage, better subsidiary profitability, rupee depreciation and absence of one-time expenditure. Q4 FY08 net profit growth of 4.1% qoq, excluding the tax reversals, was marginally below India Infoline expectations. Announcement of a special dividend of Rs20 and increase in payout policy was a positive surprise.

Terming the business environment as challenging and imposing revenue loss risk, management guides for a weak Q1 FY09. "Our Global Delivery Model, combined with our consulting and solution capabilities, provides a strong platform for customers seeking efficiencies in their IT spend," said S. Gopalakrishnan, CEO and Managing Director. "Thus, while there could be short-term challenges due to global economic uncertainties, we as a company see significant growth opportunities in the medium to long term."

FY09 guidance of 19-21% revenue growth and EPS of Rs92.3-93.9 is healthy. We believe that strong back-ended revenue growth expectation (Q2-Q4 FY09 CQGR 5.6-6.7%) and Re/$ assumption of Rs40 are key risks in the guidance