Reports subdued earnings, lowers guidance
Company names Ravi Venkatesan as cochairman; will pay ₹13,000 crore to shareholders through dividends, buybacks of shares
Infosys Ltd reported subdued earnings for the March quarter and gave a weak forecast for 2017-18, suggesting that India’s second-largest software services company has to do more to become a next-generation services-led company and meet its target of $20 billion in revenue by 2020.
In the January-march quarter, Infosys reported a 0.7% sequential rise in dollar revenue to $2.57 billion, allowing it to end financial year 2016-17 with a 7.4% growth and $10.21 billion in revenue. Net profit declined 0.8% to $543 million in the March quarter, from $547 million in the October-december period. For the full year, the profit was $2.14 billion.
Infosys also named Ravi Venkatesan as co-chairman and decided to pay ₹13,000 crore to shareholders through dividends and/or a buy-back of shares, in an attempt to buy peace with its promoters and other shareholders.
Starting this year, the company will use 70% of its free cash flows (as against 63% earlier) to award dividends or buy back shares.
Over the past few months, the company has witnessed an unseemly scrap between its promoters and board and management over issues related to corporate governance, an irregular and very generous severance package given to its former chief financial officer, and salaries of the CEO and chief operating officer. At the peak of the hostilities, the promoters demanded that chairman R Seshasayee step down.
Analysts have also argued that the promoters could be seeking a buy-back. Two of Infosys’s former CFOS, TV Mohandas Pai and V Balakrishnan have articulated this demand.
Thursday’s results, and the guidance offered by Infosys for the year ahead didn’t enthuse analysts. Infosys expects its dollar revenue to expand between 6.1% and 8.1% in 2017-18, lower than the growth projected by Nasdaq-listed Cognizant Technology Solutions Corp, which follows a January-december fiscal year and expects to grow between 8% and 10%. Goldman Sachs analysts Sumeet Jain and Saurabh Thadani wrote in a note after the results announcement that Infosys’ poor guidance came from its weakness in its biggest business of application services and in digital services.
The management put up a brave face. “Yes, we have had challenges but I think we are progressing well despite all the macroeconomic challenges, pricing pressure and the distractions we have had over the last quarter,” CEO Vishal Sikka said, referring to the spat between the promoters and the board and management.
Infosys will likely grow faster than both Tata Consultancy Services Ltd and Wipro Ltd in 2016-17 and its modest guidance for 2017-18 is in keeping with the uncertain environment, especially with the US, the biggest market for Indian IT services firms, considering more visa curbs against IT workers.
Investors punished the stock, which fell 3.71% to ₹932.90 on BSE, dragging the benchmark Sensex down 0.61% to 29,461.45 points.
Infosys’s poor performance also hurt Sikka, who earned $6.7 million in 2016-17, down from $7.3 million in 2015-16. Sikka got $3.7 million of the promised $8 million performance related pay, despite a clause in his contract allowing him to end his contract if his total compensation of $11 million fell more than 10%.