Infosys (INFY, Financial) stock fell 8.84% in Friday trading after reporting results that disappointed investors and issuing weak guidance. Adding to the stock’s woes, Nomura downgraded the stock today from “buy” to “neutral” and lowered its price target from $20.12 per share to $17.57 per share. The stock is currently priced at $16.82 per share. Analysts were especially disappointed in the updated revenue growth projection for 2017. The company has lowered revenue growth from projections of a range between 11.5% to 13.5% to a range between 10.5% to 12%.
Infosys is a global IT consulting firm headquartered out of India. The firm engages in core competencies such as application development, software services (implementation and maintenance), infrastructure management, product engineering, business process management, and consulting among emerging technologies like cloud computing, mobility, and  big data, in addition to other services. The company’s geographic revenues are reported between North America, Europe, India, and rest of the world with the revenue split being 62%, 23%, 2.7%, and 12.3% from each region respectively. The company reports revenue into the three main business segments of Business IT Services, Consulting, Package Implementation & Others, and Products, Platforms, and Others. The table below shows a more granular breakdown by subcategory for the most recent quarters.
From Infosys Quarterly Fact Sheet
Infosys’ main customer segments are Banking & Financial Services, Insurance, Manufacturing & HiTech, Retail & LIfe Sciences, and Energy, Utilities, Communications, & Services. The table below shows the customer segment revenue breakdown by percentage for the most recent quarters.
Infosys is a good company to follow because it has high profile customers, partners, and competitors. Following Infosys will give readers insights into which technologies customers are investing money and also when customers might be holding back spending. In the last quarter, the company mentioned active engagements with Hershey (HSY) and Harley Davidson (HOG). For emerging technologies like artificial intelligence (AI) initiatives, it listed Johnson Controls(JCI) and Syngenta (SYT) as active clients. It partners with many industry leaders such as, Amazon (AMZN) and Microsoft (MSFT) for cloud computing engagements. Infosys’ competitors include IBM (IBM) , Accenture (ACN), Deloitte Consulting, Tata Consultancy Services (TCS), and Wipro (WIT), among others.
Per Gurufocus, Infosys trailing twelve month metrics:
- ROE of 23.3%
- ROA of 18.9%
- ROIC of 41.9%
- PE of 17.9
- EV / EBIT of 15.1
In the video below, management discusses Q1 FY17 results with Indian reporters and analysts. My observation is the Indian analysts are not afraid to challenge and dig into management. Near the end of the call, the company tried to end the meeting early and one participant really chastised the company. Highlights from Q1 include:
- Management was disappointed with quarterly revenue growth of 2.2% in U.S. dollar reported terms, 1.4% in INR reported terms and 1.7% in quarter-on-quarter constant currency.
- Operating margin from the quarter was 24.1%.
- Revenue grew slower due to unanticipated weak discretionary spending from customers and slower ramp up in the pace of existing projects.
- Lower revenue came from life sciences, energy and utilities portfolios. The revenue for India and the Finacle units declined slightly as well.
- There was strength in telecom which reported 11.4% sequential growth, manufacturing grew at 4.4%, retail and CPG reported 5.5% growth, and transportation and logistics reported 9.3% sequential growth.
- The top 10 clients grew by 3.9% on quarter-over-quarter basis and top 25 clients grew by 4.4% quarter-over-quarter in constant currency terms.
- The number of clients in the $100 million revenue group increased from 14 to 17.
- Headcount was 197,050 as of June 30th of 2016.
- Headcount attrition was higher at 15.8% but high performing employee attrition rates improved.
- Revenue per employee was $50,897 for the quarter.
- The goal is $80,000 per employee and total company revenues of $20 billion by 2020.
- The company’s Fiscal 2016 revenues were $9.5 billion.
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Disclosure: The author does not own any stocks mentioned in the article, but may initiate a position in INFY if the price becomes more attractive.
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