Infosys (INFY) Plunges 20% On Weak 4Q Earnings and Guidance

Shares of Indian business consulting, technology, engineering and outsourcing services company Infosys Limited (INFY) plunged last week, after the Bangalore, Karnataka-based company reported fourth quarter earnings that topped on profit but missed on top line growth. For the fourth quarter, the third largest India-based IT company reported a consolidated net profit of 23.9 billion rupees, up from 23.16 billion in the prior year quarter.

Revenue rose 18% to 104.5 billion rupees. Analysts at Thomson Reuters had expected Infosys to earn 23 billion rupees and revenue to grow 21% to 107 billion rupees. Daily Chart
That miss on the top line dampened hopes that Infosys, which has ceded market share to industry leader Tata Consultancy Services and smaller rivals such as HCL Technologies over the past two years, would be able to turn around its slumping operations by reducing the massive size of its entry-level computer programmer workforce. Outsourced IT companies such as Infosys and Tata Consultancy have been reducing their staff and assigning additional responsibilities to "mini CEOs" in an effort to squeeze out more profits. Infosys has cut its hiring to the slowest pace in three years, adding 1,059 employees during the quarter. The company stated that its margins will remain under pressure in the near term. Infosys' current strategy, dubbed "Infosys 3.0," is to release its own software platforms, to differentiate its services from its competitors. However, this strategy has yet to pay off, since these new products and platforms services only contributed to 5.7% of total sales, down from 6.2% a year earlier. For the current year, Infosys is setting aside $100 million USD for the development of these new platforms and services. Infosys also offered bleak guidance for the current year. The company forecasts its revenue to rise 6% to 10% for the fiscal year. Analysts had projected 12% growth for the company, and 12% to 14% growth for the Indian IT industry. Analysts also note that Infosys' lack of full year profit guidance shows that the company has an unsure, murky outlook of its own future. K.K. Mital, CEO of portfolio management services at Globe Capital in New Delhi, noted that Infosys' weakness is a micro problem, rather than a macro one. "This looks like company-specific problem," Mital stated. "Even mid-cap companies are expected to perform better than this." Later this week, Tata Consultancy is forecast to report a 22% gain in fourth quarter profit, while Wipro, which is ranked third after Infosys, is expected to report a 15% gain. Mital's view differs from that of the company, which claims that "sluggish demand" from core Western markets was to blame for its weak numbers. During the year, Infosys signed with 56 new clients, bringing up its total count to 798, up from 52 new additions last year. This is a disappointing fall from grace for the company that had been seen as the next great Indian growth stock in India's $108 billion outsourcing services industry. Shares of Infosys plunged over 20% on Friday after the company's fourth quarter earnings and bleak forward guidance. Other News About INFY The End of Indian IT Staffing as We Know It Why are Indian companies reducing their entry-level workforces? Can Infosys Make a Comeback Like Tiger Woods? Does Infosys' recent fall represent a strong buying opportunity? Other Stocks in the News Is Rite Aid on the Right Track? With its earnings finally back in the black, should investors buy into Rite Aid's recovery? Is GameStop Fair Game for Value Investors? Is GameStop a good play on the upcoming eighth generation of video game consoles? Copyright 2013 by InvestorGuide.com, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA InvestorGuide.com, Inc.) or its employees responsible.

Published on Apr 19, 2013
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

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