Infosys Cuts Sales Guidance as Shares Drop Amid CFO's Exit

  • FY16 dollar revenue growth forecast lowered to 6.4% to 8.4%
  • 2Q profit beats estimates; board announces interim dividend

Infosys Ltd., India’s second-biggest software exporter, reduced its annual sales growth forecast in dollar terms and Chief Financial Officer Rajiv Bansal resigned. Shares dropped the most in seven weeks.

The company said revenue is likely to grow 6.4 percent to 8.4 percent in the financial year through March 31, lowering its earlier guidance of 7.2 percent to 9.2 percent, according to a statement. Net income in the quarter through Sept. 30 still rose 9.7 percent from a year earlier, beating analysts estimates, as it added 82 clients in the three months.

Rajiv Bansal
Rajiv Bansal
Photographer: Namas Bhojani/Bloomberg

The Bengaluru-based codewriter, which didn’t give reasons for the cut in growth forecast or the CFO’s resignation, is facing headwinds amid an industrywide slowdown that has challenged bigger rivals. Chief Operating Officer U.B. Pravin Rao told reporters Monday that he expects “softness” in financial services, aviation, energy and mining, while Chief Executive Officer Vishal Sikka said pricing pressure in the industry is set to continue.

“Traditionally, the second half has given us dips in growth,” Sikka told reporters in Bengaluru after announcing the earnings. “We are going to work very hard to make sure that we buck it this time. We have been foreseeing that all year.”

Software services are witnessing pressure because of slow growth in spending by customers, Girish Pai, analyst, Nirmal Bang Equities, said in a Sept. 7 report. The financial year starting April 1, 2016 “could see the start of the value compression spiral in traditional services which we have been anticipating,” he said.

Shares Decline

Shares of Infosys dropped 3.8 percent to 1,122.90 rupees in Mumbai, the biggest decline since Aug. 24. The stock has rallied 20 percent since July 10, when it touched a nine-month low. A lower sales forecast is the main reason for the selling pressure, said Sudip Bandyopadhyay, chief executive officer at Mumbai-based Destimoney Securities Pvt. 

“Infosys had run up almost 10 percent in the past month, clearly indicating higher expectations that the investors had from the earnings,” he said. “After such a run-up, correction in the stock price was always a possibility unless there was something spectacular from the earnings.”

Net income in the three months through Sept. 30 rose to 34 billion rupees ($525 million) from 31 billion rupees a year earlier, beating the estimated 32.8 billion rupees in a Bloomberg survey. Sales climbed 17 percent to 156.4 billion rupees in the quarter from 133.4 billion rupees a year ago, exceeding the 152.2 billion-rupee estimate in the survey.

Bansal will resign by the end of business day Monday, and he will be replaced by M.D. Ranganath, Infosys said in t he statement.

Hedging for Volatility

Focus on operational efficiencies and a hedging program to mitigate currency volatility resulted in higher operating margins despite higher variable payouts, Bansal said in the statement, without elaborating on why he quit. He told television channels he is seeking opportunities outside Infosys.

The total contract value of large deals signed during the quarter was $983 million, the company said, maintaining its sales forecast for the year in constant currency terms at 10 percent to 12 percent. The board declared an interim dividend of 10 rupees a share.

The appreciation of the dollar against major currencies is the main reason for the cut in guidance, said Amar Mourya, an analyst at Mumbai-based brokerage India Nivesh Securities. Of the world’s 17 primary currencies tracked by Bloomberg, 14 weakened against the dollar in the quarter.

“It is a cross-currency impact,” Mourya said. “They had to do it because everything is depreciating against the dollar.”

Accenture Plc said last month that its business outlook for the full 2016 fiscal year assumes a foreign-exchange impact of a negative 4 percent compared with fiscal 2015.

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