Result :- Infosys

At the current price of Rs 2,422, Infosys is trading at a trailing twelve months P/E of 14.7 times. 

A major reason for the subdued performance during the quarter as well as the year was on account of delay in deal ramp ups. The delay was more pronounced for the offshore deals. However, the management has stated that it is seeing a healthy deal pipeline. The win rate has improved. But pricing has remained under pressure. The pricing for the IT services business has remained under pressure due to the pressures being witnessed in the commoditized business. At the same time the growth in the pricing on the consulting side has not been able to increase at a faster tick. Therefore pricing is expected to remain under pressure. The management feels that this is a short term phenomenon thanks to the volatility in the overall environment. Delays in ramp ups are expected which could lead to a subdued performance in coming quarters. As such the management has given a revenue growth guidance of 6% to 10% in FY14. 

Operating cost pressures are expected to continue as well. A major problem envisaged by the management is with regards to the visa issue. Apparently there has been over application for visas by the industry this year. This could have a negative impact in two ways. First it would hurt the onsite business to some extent. It would also lead to higher costs. At the same time, lower revenue productivity could hurt margins as well. The management plans to change its recruitment policy to give offers to only 49% of their total requirement anytime during the year. This would help reduce the bench size in coming times. It should be noted here that bench size was very high during the current quarter as the management had met its recruitment commitments. This had put margins under pressure. The management also plans to restructure its compensation program to balance the fixed and variable parts. But it does plan to give a wage hike (did not disclose the hike percentage). Therefore margins will remain under pressure though it has declined to give any guidance on the margin front. 

Effect of the Lodestone acquisition made in September 2012 was visible in the current quarter and has been included in the management's revenue guidance for FY14. 

Although near term macro headwinds continue to persist, we believe that Infosys is on the right path to execute its 3.0 strategy. However, because of operating cost pressures, margins would remain under pressure in the short term. Having said that, we believe that Infosys is well poised to deliver superior shareholder returns in the long run. Accordingly, we maintain our Buy view on the stock from a 2-3 year perspective.