Infosys Q4 2010 earnings – Facts,Metrics & Learnings
DATE: APRIL 13th, 2010
LEARNINGS
- US markets are and will continue to be key drivers for growth for outsourcing vendors and recovery in US markets directly impact the growth of offshoring vendors.
- Discretionary spending is ticking back up and budgets for offshoring will continue to increase.
- Firms are looking past cost cutting and figuring out how they grow their business and the changes required to technology to meet those demands are growing the offshoring demand.
- Large offshore initiatives still slow to kick off. Companies looking at smaller short term initiatives with tangible results vs longer multi year transformation deals.
- In BFSI space, looks like the charge of transformation projects has moved out from IT to businesses. So IT budgets earlier allocated for IT transformation are now run as programs by businesses.
- Attrition will be a challenge and firms like Infosys are changing HR career tracks, giving higher raises to hold on to employees as the market picks up.
FACTS
- 47 new clients ( highest over the last many quarters)
- 126 Fortune 500 clients
- 338 million dollar clients, 26 50+ million dollar clients
- Top client contribution of 4.6% of revenue
- 4 transformation project wins this quarter – 2 of them are 50 million dollars+. Discretionary spending is ticking back
- Building new service offerings and growing niche services – IP based solutions, Learning Services, Engineering Services,
- Last year pricing declined by 1.5% blended rate.
- Margin decreased by 100 bps to 30.1%.
- Most clients closed their budgets – budget are flat or marginally up. Clear signals that offshoring spend of IT budgets will go up.
- Global economy still remains challenging. Clients starting to invest in growth when the downturn is over, discretionary revenues – SI, consulting revenues gone up 23% to 26%
- Sold 60% in OnMobile Inc, still holds 40% of the firm
- Growth in Europe – Manufacturing, Banking from UK, Energy and Utilities , Retail and Consumer Products.
- Budget processes within client organization closing on time though the controls in place for money disbursement are more stringent.
- Building new career architecture – moving from delivery only focus to domain expertise, solutions, sales model. Performance has become more sharply defined. Infosys HR strategy over next couple of years to build a model to equate higher performance to billing rate
- Domestic delivery capability expansion in SEZ zones and not in STPI.
- January/February targeted poaching from competitors, employees leaving for higher studies has had an impact on attrition this quarter.
METRICS
- Revenues – $1.296 billion QoQ – (+5.2%), YoY – (+15.6%)
- Net Income – $349 million QoQ – (+4.5%), YoY – (+8.7%)
- Earnings forecast for next quarter – between 1.33 to 1.34 billion YoY growth between 18.5% to 19.5%
- Fiscal 2011 revenues forecast to grow 16-18%
- Cash – $ 4.66 billion
- FY10 Total revenues – $4.8 billion (YoY +3.0%)
- FY10 Total Net profit – $1.3 billion (YoY +2.5%)
- 9,300 people gross, 3,914 net addition of employees this quarter
- 113,796 employee strength end of March 2010
- Attrition Rate – 13.4% ( compared to 11.6% last quarter)
- Adding 30,000 people next year
- Pay raises of 14% offshore ( India) and 2-3% onshore
- Infosys BPO employee strength – 17,932, Australia – 362, China – 1,765, Consulting – 594, Mexico – 346
- Revenue break up – North America – 66.1%, Europe – 22.5%, India – 1.4%
- Application Development – 39.6%, BPM – 6.2%, Consulting Services and Package Implementation – 26%, Infrastructure Service – 7.2%, Product Engineering Services – 1.8%, SI – 4.5%, Testing Services – 6.6%
- Insurance,Banking – 34.8%, Manufacturing – 20.2%,Retail -13.%, Telecom -5.3%, Energy & Utilities – 5.8%
- BPO Revenue (millions USD) – 80.67, Consulting – 35.90, China – 14.05
- BPO Net Income (millions USD) – 12.67, Consulting – 23.74, China – 1.78
EARNINGS FOR LAST QUARTER TO COMPARE (Q3, 2010 – DEC 2009 earnings):
FACTS
- 32 new clients
- Growth of 12.2% in their Top 10 clients which contribute to 27.5% of total revenues – Going deeper within existing clients
- Stabilization in pricing. Pricing up 1.1%
- Growth in BFSI, Energy,
- Manufacturing,Telecom, flat
- Retail lagging
- Growth in US geographies, Europe still lagging
- Net addition of 4,429 people this Quarter
- Total employee strength 109,882
- Attrition at 11.6%
- Plans to hire 6000 people in Q4 FY10, total hire for FY10 24,000. This is higher than 20,000 projected last quarter
- Infosys BPO total strength 16,874, net addition 841
- Setup Infosys Public Services Ltd in the US with a capital base of $ 5 million to pursue Federal/State Government deals in the US
- 119 of the Fortune 500 companies are clients of infosys
- McCamish Acquisition added 1.9 million in revenue for BPO this quarter,Q4 expected to be $7 million contribution
- Introduced Flypp – platform for app store for small to medium sized telecom service provider
- Infosys Consulting and China subsidiaries profitable. China operations servicing non-domestic market primarily.
- 1,600 people in China
METRICS
- Revenues – $1.232 billion QoQ – (+6.8%), YoY – (+5.8%)
- Net Income – $334 million QoQ – (+5.4%), YoY – (+.6%)
- Fiscal Year 2010 ( ending March 2010) Guidance – $4.75 – $4.76 billion, YoY growth 1.8% to 2.0%
- 3.1 billion dollars in cash
- Revenue break up – North America – 66.6%, Europe – 21.9%, India – 1.2%
- Application Development – 42.3%, BPM – 5.9%, Consulting Services and Package Implementation – 23.3%, Infrastructure Service – 7.1%
- Insurance,Banking – 34.6%, Manufacturing – 19.3%,Retail -13.1%, Telecom -16.2%, Energy & Utilities – 6.1%
LEARNINGS
- US markets are and will continue to be key drivers for growth for outsourcing vendors.
- Some of the large vendors like Infosys are leveraging their innovation and the market changes to offer services and products which fit the new paradigm. New pricing models, building platforms like Flypp are some of the product innovations coming from Indian vendors.
- Financial services firms continue to be the drivers for growth for outsourcing vendors. With the industry maturing and a number of financial firms busy with risk management, regulatory, M&A activities are leveraging outsourcing providers to manage cost and create services.
- Cost reduction and cost management continues to be the number one reason driving offshoring activities.
- Cloud competing still lagging in the developed countries. Infosys sees emerging countries leapfrogging and adopting cloud computing earlier.
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