Infosys has been the market leader in the IT space and has kicked of the declaration of quarterly results each time. It was no different this time either. In the last five quarters beginning with results for 4th Quarter for 2011-12 it has been observed that there have been gap down opening post the result on 4 out of five quarters, with just the December Quarter having a gap up opening. Infosys has always declared its results prior to the markets opening and therefore the market has sort of made up its mind prior to opening itself of how the results are.
From the table below one can see the impact of the gap down on the SENSEX and NIFTY. What is surprising is the fact that the one occasion when Infosys gained Rs 393 or 14.49%, The SENSEX was flat while the NIFTY was down 0.29%. Results of Infosys have had a marginal impact on TCS with the share reacting 1.63% against the 21.35% fall recorded in Infosys.
Coming to the results this time around, there were a couple of issues that did not go down well. The company was able to meet analyst expectations on revenue as per Bloomberg estimates, while the profits were marginally better than analyst estimates. What spooked the market was the fact that the company has given guidance only on revenues for the next year. Earlier it gave guidance also on earnings and margins. The revenue guidance is a growth of 6%-10% which is lower than Nasscom estimates of 12%-14%. Analysts seem to be reading too much into the fact that mere revenue guidance has been given and no margins or profit related guidance has been given. Most other companies have not been giving similar guidance at all.
In the last ten years the net profits of Infosys have grown 10 fold from Rs 958 crs to Rs 9,421 crs. Sustained growth year after year and at a level of almost Rs 10K crs is not many companies can boast of. The company has grown at much higher percentages than the projected single digit currently and therefore traded at higher multiplesearlier. The current earnings for the year ended March 2013 is Rs 164.87 which at the current price of Rs 2295 translates into a PE multiple of 13.92 times. The general expectation for the SENSEX and NIFTY companies for the current year is that they would see a slowdown in earnings. In such a scenario one could be quite sure that Infosys based on current earnings is certainly not expensive than the basket of earnings of the benchmark indices. If such be the case, why the apathy towards the company?
I believe the answer lies somewhere else and a similar incident comes to mind. Hindustan Lever as the company was then known had Mr VindiBanga as its Managing Director around the 2000-2004 period. The company was great and the person very capable. Something just did not click and the company’s performance and stock price kept on slipping. The Unilever shifted Mr Banga to a bigger responsibility to look after a larger geography and then on the fortunes of HLL changed. It was a case of the right person at the right place but at the wrong time.
Could it be possible that the present head of Infosys Mr Shibulal is in a similar situation where he is the right person at the right place but at the wrong time?
In conclusion, I believe the Infosys story is not over. What has happened on Friday is an aberration and though some more fall today and tomorrow cannot be overruled, good companies cannot be written off.