In everything from sluggish top-line growth to increased government regulation, the recession has handed the corporate world a barrelful of lemons. But for global IT, consulting, and outsourcing provider Infosys
Infosys' fiscal-2010 second-quarter results show that shell-shocked companies are beginning to spend again -- both to drive operating efficiencies and to better manage risk. India-based Infosys added 35 new clients in the quarter, a significant improvement from the previous quarter's gain of 27.
Perhaps surprisingly, the banking, financial-services, and insurance sector (BFSI, in industry lingo) grew by about 3.5%. The uptick, according to management, was driven by M&A and interest in regulatory compliance. Meanwhile, revenue from the company's top-10 clients increased 5.9%, and repeat business matched historically strong levels.
As for the headline financials, revenue fell 5.1% year over year to $1.15 billion. Earnings per American Depositary Share of $0.56 were flat with the year-ago period, but they exceeded management's guidance of $0.51. On a decidedly positive note, sequential revenue growth picked up from the prior quarter, and volumes increased offshore and onsite.
Meanwhile, Infosys was able to expand its operating margin, even as it added employees. Does that sound too good to be true? Actually, it's not. First, the company strikes me as particularly agile in managing costs, which is certainly the rule of the day. Second, Infosys' customer size and repeat business have grown, allowing management to trim sales and marketing expense as a percentage of revenue. Nice, right?
Finally, I had previously raised concerns about a second round of pricing renegotiations. So far, clients haven't demanded additional discounts en masse, and management feels that it's pretty much in the clear.
All said, Infosys' quarter was a moderately pleasant surprise. Its revenue results came in slightly better than competitor Accenture's
Nonetheless, management remains cautious, saying that it's probably still "in the woods." The company's guidance reflects that tentative outlook: Full-year earnings per American Depositary Share are expected to decline roughly 7% (with recent wage increases a potential contributing factor), while the company predicts that revenue will fall by roughly 1%.
Compared to Accenture and IBM
Things are certainly looking up for Infosys. Unfortunately, the stock is priced as if the corporate world's sour woes will soon distill into vats of lemonade. Eventually, that may be true. But in the near term, I'd expect servings by the pint, not the pitcher.