Infosys Ltd ADR (NYSE:INFY) recently reported its latest quarterly earnings; it was helped in the quarter by the depreciation of the Indian rupee. The company’s shares jumped as its quarterly results were decent and the company maintained its revenue growth forecast. Let’s take a closer look at the results and try to figure out how the company may perform in the future.
Quarterly performance
The major highlight of the results was reported revenue of $1.99 billion for the quarter, up 13.6% year-over-year. Net profit for the quarter was $418 million, a sequential fall of 5.9%. Year-over-year growth was 0.5%, however.
The company added 66 new clients in the first quarter, bringing the total number of active clients to 836. It has a strong presence in consulting, system integration, and it worked with all of the top 10 retailers in the United States in digital transformation. In manufacturing, it is associated with many of the high-tech manufacturers in regard to their transformation and implementation. An important factor regarding Infosys Ltd ADR (NYSE:INFY)’s revenue is that 54% of it is contributed from the consulting and system integration space.
The road ahead
Infosys Ltd ADR (NYSE:INFY) has been falling behind its competitors and it is trying to gain its footing back. It is looking to salvage its market share by aggressively focusing on deals that would carry low margins, something that could have an effect on its profit in the future. The company hopes that these low-margin deals will gradually revert to the normal margin levels and help it to maintain its profitability in the long run.
Infosys Ltd ADR (NYSE:INFY) might face more problems if visa regulations in the U.S. become more stringent, however, as stricter rules will make it difficult for it to send its employees to the nation. Infosys Ltd ADR (NYSE:INFY) has the maximum exposure to North America among its peers, generating 62% of its revenue from there. A change in visa rules will certainly hit the company hard. Infosys might have a strong 2013 as a result of higher spending by the U.S. government and businesses, however.
How is the competition?
Infosys’ major rival, Tata Consultancy Services, has also been making strong moves of late. It is India’s largest exporter of software services and recently reported a 17% jump in earnings. The company is also looking at strong growth in the U.S., as reported by Reuters. Management at Tata Consultancy expects the company to grow at above industry averages as it is forecasting an improvement in demand. Demand from the U.S. is strong for the company’s services, and this is the reason why management is upbeat. Infosys was a bit cautious when it released its own results, however.
Another rival, Wipro Limited (ADR) (NYSE:WIT), is experiencing trouble in its business. In the first quarter, Wipro Limited (ADR) (NYSE:WIT)’s revenue increased a marginal 0.5% as the company cited weak government and telecom spending. Moreover, management is actually guiding for revenue growth between -0.6% and 1.6% for this fiscal year, which is very depressing when compared to the expected industry average of 12% to 14% that is expected by the National Association of Software and Services Companies.
Cognizant Technology Solutions Corp (NASDAQ:CTSH) is another major player in the IT space in India. Cognizant leapfrogged Infosys last year in terms of Global IT ranking as it grew 20% between 2011 and 2012. Cognizant Technology Solutions Corp (NASDAQ:CTSH) has seen solid growth in recent times. Its revenue rose 18% in the previous quarter; its next earnings report is scheduled for August 6. Taking the company’s most recent results into context, however, Cognizant had seen solid earnings growth of 17% which is far ahead of the growth that Infosys had achieved.
To sum things up, Wipro Limited (ADR) (NYSE:WIT) is in the stickiest situation of the lot while Tata Consultancy seems best positioned along with Cognizant. We cannot count out Infosys, however, as the company has some strategies in place to accelerate growth.
Guidance and final words
Infosys expects that its annual revenue in dollars would increase 6% to 10% this year, though analysts expect a cut. The company had seven contract wins during the first quarter that were worth $600 million. “We are definitely more aggressive in going after growth and are definitely making progress in our efforts to win large IT outsourcing deals,” said Mr. S.D. Shibulal, Infosys’ Chief Executive Officer.
The major headwinds for Infosys are cut-throat competition, higher subcontracting costs, lower pricing, and a possible change in U.S. visa legislation that could make it more costly and difficult to send workers to the country. The company is aggressively moving ahead with its market strategies by focusing on winning large outsourcing deals, however, despite negativities ahead resulting from low margins. Even though it may cause margin pressure in the short and medium term, the company believes that it can work on things like automation and other efficiencies to improve in the long term.
The article Is This Indian IT Company Worth Buying? originally appeared on Fool.com and is written by Amal Singh.
Amal Singh has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Amal is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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