A week after disappointing March quarter results weighed on the stock of Tata Consultancy Services (TCS), Infosys — India’s second-biggest IT services company –- faced a similar fate on Friday when it announced its numbers during market hours.
The Infosys scrip dropped more than 6% in Friday’s intra-day session after its March quarter numbers failed to meet Street’s expectations. The company reported a 2.6% sequential decline in dollar revenue to $2.16 billion and also saw a 102-bps fall in the Ebit margin, which stood at 25.7% for the three months to March 2015. The stock closed at Rs 1,996.25, down Rs 126.3, or 5.95%, its steepest daily fall since May 29, 2014.
The sharp sell-off in Infosys despite the company announcing issuance of bonus shares and higher dividend weighed on the benchmark indices with the Sensex losing 297 points, or 1.1%, to end the session at 27,437.94. Besides a 1:1 bonus issue, Infosys also announced acquisition of Kallidus for a consideration of $120 million, including retention bonus and deferred component.
For FY15, Infosys reported constant currency dollar revenue growth of 5.6%, failing once again to meet its own estimated growth range of 7-9%. The Street’s reaction to Infosys’s projection of 10-12% remained tepid given that it failed to meet its conservative guidance for FY15.
While the company reported moderate volume growth of 0.9% q-o-q, a decline in pricing and revenue performance of North America and Europe geographies also failed to enthuse the Street. Revenue growth in both regions reported moderate decline of 0.4% and 0.3% sequentially and key verticals like financial services and insurance (FSI) and manufacturing grew at close to 1% q-o-q.
Due to the sharp correction in the Infosys stock, its valuation discount to TCS, which had fallen to a fresh low in early February, jumped. As on Friday, TCS traded at one-year forward earnings multiple of 21 times, while Infy changed hands at forward PE multiple of 17 times. In February 2015, both stocks traded at forward PE multiples of 19.6 and 19.3 times, in that order.
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