Infy feels the heat of recession; net profit dips

Indian IT juggernaut Infosys reported Q1 2011 revenues of Rs.6,198 crores, which was in line with its guidance of 5,919 to 5,963 crores, growth of 4.3% and 13.3% QoQ and YoY respectively.

Net profit was Rs. 1,488 crores, which declined 7% and 2.4% QoQ and YoY respectively. However, this includes the investment in OnMobile Systems of Rs. 48 crores.

The repercussions of the dip in net profit were felt in its stock price in BSE SENSEX, which was down 3.44%.

To put things in perspective, Kris Gopalakrishnan, Infy’s CEO said “There are distant clouds on the horizon, we don’t know if they are rain clouds or cyclone,”

The primary reason for the dip in net profit can be attributed to currency fluctuations and the business outlook in Europe because of recession, which is lagging behind the US in terms of recovery.

For the quarter ended June 30, 2010, Infosys derived 67.3% of its revenues from US; 20.3%, which is less than 22.5% of Mar 31, 2010, from Europe; 1.7% from India, and 10.7% from the rest of the world. Since more than two-thirds of company’s revenues comes from US and Europe, where its Fortune clients are based are yet to come out of the woods and hence the dip in net profit is understandable.

Despite announcing double-digit salary hike for Infoscions in the last quarter, attrition for the quarter increased 2.4% from previous quarter, which shows that poaching is again rampant among the peers. This could add pressure on its margins for which the company has to find a way out to reduce attrition.

On the flip slide, the company, which is known for its ‘project less and achieve more’ strategy, has raised its full-year revenue projections. This shows that the company is gung-ho about the full-year economic outlook across all geographies.

Let’s wait and watch whether the clouds are rain clouds or cyclone.