Infosys results show IT hiring in slow lane
http://www.moneycontrol.com/news/business/infosys-results-show-it-hiring-on-a-slow-lane-2258265.html
At first glance, Infosys’s latest quarterly numbers look uninspiring. Many feel that the company’s best days are behind, and that it no longer deserves the label of a growth stock.
In the post earnings conference call with analysts and fund managers, the management didn’t sound too bullish. So do not expect a return to the Murthy era of under promise and over deliver.
CEO Vishal Sikka said that the company would stay the course on transformation, but requested investors to be patient as radical changes, including those in organisational culture, would take time.
Still, it may be too early to write off the erstwhile industry bellwether as it tries to navigate the ongoing disruption in the sector.
A few takeaways from the call that captured our attention:
Beginning Q1 FY18, Infosys will start reporting the revenue from emerging technologies like AI (artificial intelligence), digital and cloud services (Skava, Mana, Panaya and Edge in Infosys parlance) separately. According to the management these businesses have grown 43 percent in FY17.
It expects wage hikes (mid to high single-digit wage growth) and visa costs to be a drag on June quarter earnings, but is hopeful of a better performance in the second half of the fiscal.
The management reiterated that it does not want to remain a commoditised provider of IT services. AI is having a strong impact on its traditional portfolio and the company sees opportunity in AI in the coming years.
Currently, 65 percent of the Infosys workforce is contributing to 55 percent of the revenue (mostly traditional services that are growing slowly) and the average revenue per employee is around USD 48,000. Around 35 percent of the employees are contributing to 45 percent of the revenue (this piece is growing at a rate of 20 percent) and are therefore reporting a much higher revenue per employee at USD 72,000.
While not explicitly admitting that AI is eliminating jobs rapidly, Sikka said the company needed more of highly skilled workers. The numbers speak for themselves, nevertheless. Infosys added 6,320 people to the work force which is down 65 percent from last year’s addition of 17,857. This is indeed a wake-up call for our engineering colleges, coaching centres and the aspiring IT professionals. In fact, as an adjunct the company also mentioned that attrition including that of the high performers have been stable.
On the contentious issue of US Visa, while admitting that there remains considerable uncertainty, the management nevertheless alluded to the steps taken like onsite development centre in the US to step up local hiring and training. They however, haven’t seen any undue delay in visa processing so far.
What to do with the stock?
The disappointing numbers coupled with the subdued guidance has taken the expected toll on the stock price, with the scrip down 4 percent. We do not rule out short-term weakness on the back of earnings downgrade. However, the valuation at 14.4 times FY18 estimated earnings isn’t too demanding when seen in the context of healthy dividend yield and probable upside from currency movement. Hence, for investors who are looking for steady cash flow of dividend as opposed to the excitement of capital appreciation of a growth stock, it might be worth accumulating the declines.
In the post earnings conference call with analysts and fund managers, the management didn’t sound too bullish. So do not expect a return to the Murthy era of under promise and over deliver.
CEO Vishal Sikka said that the company would stay the course on transformation, but requested investors to be patient as radical changes, including those in organisational culture, would take time.
Still, it may be too early to write off the erstwhile industry bellwether as it tries to navigate the ongoing disruption in the sector.
A few takeaways from the call that captured our attention:
Beginning Q1 FY18, Infosys will start reporting the revenue from emerging technologies like AI (artificial intelligence), digital and cloud services (Skava, Mana, Panaya and Edge in Infosys parlance) separately. According to the management these businesses have grown 43 percent in FY17.
It expects wage hikes (mid to high single-digit wage growth) and visa costs to be a drag on June quarter earnings, but is hopeful of a better performance in the second half of the fiscal.
The management reiterated that it does not want to remain a commoditised provider of IT services. AI is having a strong impact on its traditional portfolio and the company sees opportunity in AI in the coming years.
Currently, 65 percent of the Infosys workforce is contributing to 55 percent of the revenue (mostly traditional services that are growing slowly) and the average revenue per employee is around USD 48,000. Around 35 percent of the employees are contributing to 45 percent of the revenue (this piece is growing at a rate of 20 percent) and are therefore reporting a much higher revenue per employee at USD 72,000.
While not explicitly admitting that AI is eliminating jobs rapidly, Sikka said the company needed more of highly skilled workers. The numbers speak for themselves, nevertheless. Infosys added 6,320 people to the work force which is down 65 percent from last year’s addition of 17,857. This is indeed a wake-up call for our engineering colleges, coaching centres and the aspiring IT professionals. In fact, as an adjunct the company also mentioned that attrition including that of the high performers have been stable.
On the contentious issue of US Visa, while admitting that there remains considerable uncertainty, the management nevertheless alluded to the steps taken like onsite development centre in the US to step up local hiring and training. They however, haven’t seen any undue delay in visa processing so far.
What to do with the stock?
The disappointing numbers coupled with the subdued guidance has taken the expected toll on the stock price, with the scrip down 4 percent. We do not rule out short-term weakness on the back of earnings downgrade. However, the valuation at 14.4 times FY18 estimated earnings isn’t too demanding when seen in the context of healthy dividend yield and probable upside from currency movement. Hence, for investors who are looking for steady cash flow of dividend as opposed to the excitement of capital appreciation of a growth stock, it might be worth accumulating the declines.
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