Infosys posted a 13.4% increase in its consolidated net profit on Friday. Despite this, the company's shareholders went on a selling spree. Here are nine reasons why.
Infosys posted a 13.4% increase in its consolidated net profit for the April – June quarter on Friday. Compared to the same period last year, when Infosys had posted a net profit of Rs 3,028 crore, this year's profits stood at Rs 3,456 crore.
Despite this, the company's stock crashed nearly 10% on the domestic bourses.
On the BSE, Infosys' stock crashed over 9% intraday, hitting a low of Rs 1,058.30 per share. However, at 1225 hours, it had recovered slightly to Rs 1,072.95 apiece, still down 8.75% from previous day's close.
On the National Stock Exchange, Infosys' stock fell 9.72% to Rs 1,052 per share. Later, it recovered slightly and was trading at Rs 1,071.70, still down 8.89% or Rs 104.55 from previous day's close.
Here's why Infosys' investors went into a selling spree after the results were announced:
1) While on a yearly basis, the company's net profit grew 13.4% to Rs 3,456 crore, it was still below what the market was expecting out of the IT services major. This triggered a selling spree on both the bourses.
2) Consolidated net profit was up on a yearly basis, but sequentially, profits fell 4.29%. In January – March, Infosys posted a net profit of Rs 3,590 crore, higher than the Rs 3,456 crore posted in the April – June quarter.
3) CEO Sikka blamed “unanticipated headwinds in discretionary spending in consulting services and package implementations as well as slower project ramp-ups in large deals that we had won in earlier quarters, resulting in a lower than expected growth in Q1," for the poor results.
4) On a yearly basis, operating profits grew 17.4% but fell 4.1% on a quarterly basis to Rs 4.047 crore.
5) The company has cut its revenue guidance. Infosys, in a press release, said it is revising its revenue guidance to 10.5 - 12% in constant currency terms for 2016-17 from the earlier estimated 11.5 – 13.5%.
6) The company has cut its sales forecast for 2016-17. The estimate was cut from 11.8 – 13.8% to 10.8 – 12.3% sales growth in US dollar terms. The company said it was in line with firms worldwide that are reining in IT spending and shifting to cloud-based software services.
7) High attrition rate continued to weigh on Infosys. In the quarter under consideration, 10,262 employees left the company, up from 8,373 employees in the March-end quarter and 8,553 in the same quarter last year. This is despite the company's constant efforts of retaining its human capital
8) The disappointing results are a day after CEO Vishal Sikka's top executive Samson David quit the company to join HPE, making it the fifth high-level exit since he took over in 2014. David was the global head of Mana, the company's Artificial Intelligence platform. He was also incharge of cloud, infrastructure, and security (CIS). Other exits include former chief financial officer Rajiv Bansal, head of manufacturing and EVP (Executive Vice-President) Sanjay Jalona; Infosys BPO head and EVP Gautam Thakkar, and Infosys EdgeVerve head and EVP Michael Reh.
9) The below-than-expected numbers come only a day after rival TCS posted a 10% jump in its net profits at Rs 6,317 crore in the April – June period on a yearly basis. Sequentially, TCS' profits have also dropped, but only marginally by 0.5% compared to the 4.29% drop in Infosys' profits on a quarterly basis. Thanks to this, TCS' investors were more forgiving than Infosys'.
(With inputs from agencies)
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 "Infosys CEO Vishal Sikka")
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