VR Logo

Infosys Q2 Net Profit Jumps 7.5%

But its standalone net profit showed a disturbing fall

Infosys Technologies, one of the top IT companies in India, announced its quarterly results today. The company, famous for issuing conservative forecasts and then beating them, has done it again, announcing an earnings before interest, taxes, depreciation and amortization (EBITDA) margin (34.6%) that is ahead of street expectations and is a rise of 150 basis points (bps) year-on-year (YoY), but quarter-on-quarter (QoQ) it is 47 bps.

As per its Q2FY10 results the company is expecting the future to be even rosier and has issued an FY10 earnings per share (EPS) guidance upgrade of 4.1 per cent at the top end (in Indian rupee terms).

Yet a curious anomaly has risen and may have accounted for the rise and fall of the Infosys stock today.

While on a consolidated basis the company managed to show a rise in net profits to Rs 1,540 crore for the quarter ended September 30, 2009, from the previous quarter’s Rs 1,527 crore, the fact of the matter is that on a standalone basis, Infosys managed to post a net profit of Rs 1,438 crore (as per data on BSE website) for the 2nd quarter of the fiscal, which compared not so favourably with first quarter’s Rs 1,464 crore, even though net sales increased from Q1’s Rs 5,104 crore to Q2’s Rs 5,201 crore.

On a YoY basis the company managed to increase its income by 2.66 per cent despite its software development expenses increasing by 3.67 per cent. However, Infosys managed to reduce its marketing and administration expenses by about 9 per cent and 7 per cent respectively.

Another boost came from its other income which jumped up by Rs 155 crore (201%).

The company also announced an interim dividend of 200 per cent (on par value of Rs 5 per share) at Rs 10 per share.

That the slowdown effect on the company was reducing was clear from the fact that the company added 35 clients during the quarter.

However, the company’s profit has been declining over the past 4 quarters on a YoY basis (check table).

 

Change in per cent - YoY
Period Ending    30-Sep-09    30-Jun-09    31-Mar-09    31-Dec-08    30-Sep-08
Net Sales / Interest Earned / Operating Income   2.66   13.02   24.04   35.76   31.18
Other Income   201.30   102.29   86.47   -68.42   -46.15
Total Income   5.64   15.54   25.94   31.94   28.41
Operating Expenses   1.61   7.04   20.18   30.05   27.79
Profit Before Depreciation and Tax   13.15   32.77   36.76   35.36   29.60
Depreciation   28.57   29.68   47.18   22.46   21.05
Profit before Tax   11.63   33.12   35.68   36.69   30.51
Tax   58.20   216.10   53.61   51.61   37.08
Net Profit   3.45   16.01   32.74   34.74   29.42
 

 

Net profit on a QoQ basis has fallen for three consecutive quarters now. Compared to previous quarter's result (-6.69 %) the company fall has been less steeper in this quarter (-1.78%).

The interesting change has been in its outlook for the fiscal 2010 result, which is bullish now, after being quite the opposite not so long ago.

While it declared its FY2009 result in March the company had issued a guideline that its FY2010 result will witness an income decline YoY of 1.5 per cent. Whereas now, it signed off on a bullish note stating that income will witness growth of 1.2 per cent to 1.7 per cent.

Currency fluctuation is also weighing on the company’s mind. The volatility is definitely a dangerous thing for the company as can be gauged from the change that has been used in the projection of FY2010 result. It was pegged the highest when calculated in March, 2009 at Rs 50.72 for 1 US$. But as the Indian rupee has started to gain strength this too has changed. As per the September quarter's result, the guideline has been issued keeping in view that 1 US$ will be converted at a rate of Rs 47.91.The Indian rupee has gained over 12 per cent since March, 2009.

The Infosys scrip at the current market price of Rs 2,226 is trading at 22x FY10E EPS of Rs.100.34, according to Brics Securities. However, it says that the stock is likely to remain flat.

Shares of the company jumped by as much as 3.7 per cent, but over the day it kept falling and closed down by 1.5 per cent. In the quarter, the stock price has jumped 30 per cent.

 

Change in per cent - QoQ
Period Ending    30-Sep-09    30-Jun-09    31-Mar-09    31-Dec-08    30-Sep-08
Net Sales / Interest Earned / Operating Income   1.90   -2.84   -3.24   7.17   12.18
Other Income   -12.45   6.85   416.67   -37.66   -41.22
Total Income   1.19   -2.40   0.44   6.49   10.67
Operating Expenses   2.13   -2.74   -1.44   3.79   7.58
Profit Before Depreciation and Tax   -0.34   -1.83   3.70   11.53   16.94
Depreciation   2.99   -3.83   23.67   4.97   3.87
Profit before Tax   -0.71   -1.61   1.85   12.18   18.41
Tax   3.49   25.17   26.81   -3.69   106.78
Net Profit   -1.78   -6.69   -1.81   14.96   10.14
 

 

Full Picture
Period Ending    30-Sep-09    30-Jun-09    31-Mar-09    31-Dec-08    30-Sep-08    30-Jun-08    31-Mar-08
Net Sales / Interest Earned / Operating Income   5201   5104   5253   5429   5066   4516   4235
Other Income   232   265   248   48   77   131   133
Total Income   5433   5369   5501   5477   5143   4647   4368
Operating Expenses   -3402   -3331   -3425   -3475   -3348   -3112   -2850
Profit Before Depreciation and Tax   2031   2038   2076   2002   1795   1535   1518
Depreciation   -207   -201   -209   -169   -161   -155   -142
Profit before Tax   1824   1837   1867   1833   1634   1380   1376
Tax   -386   -373   -298   -235   -244   -118   -194
Net Profit   1438   1464   1569   1598   1390   1262   1182
Equity Capital   287   287   286   -   286   286   286
Reserves   19794   19004   17523   -   -   14491   13204
Basic EPS after Extraordinary items   2.508   2.556   2.738   2.792   2.428   2.207   2.066
Diluted EPS after Extraordinary items   2.505   2.552   2.735   2.789   2.423   2.201   2.06
Nos. of Shares - Public   37256745.1   37384131.2   36875756.2   36872840   36827293.1   36829857   36784275.8
Percent of Shares-Public   64.99   65.24   64.37   64.39   64.33   64.35   64.31
Net Profit Margin   27.65   28.68   29.87   29.43   27.44   27.95   27.91
Cash EPS   28.66   29.01   31.08   -   27.12   24.77   23.15
 

Note: Figures in Rs crore