Infosys is confident to grow at 1.5% every quarter; time to move out of the stock?

MUMBAI: The March quarter performance of Infosys is more than disappointing with dwindling topline growth, a sharp margin erosion, and pressure on billing rates. What more, the future doesn’t look any better considering the management is “confident” to grow revenue by at least 1.5% every quarter in FY14. This might spook investors given that some other top rung Indian IT exporters have been growth at a relatively better pace

Is it finally time to move out of the erstwhile industry bellwether’s stock?

While it is true that the Indian IT sector has been facing headwinds for the past two years due to demand pressure in the biggest markets of the US and Europe, the performance of Infosys has deteriorated substantially when compared to its peers. The company’s quarterly growth has also been erratic.

In the December 2012 quarter, the company had surprised investors by reporting 6% topline growth in dollar terms on top of 2.6% increase in the prior quarter. In the March 2013 quarter, it could barely report 1.4% rise in revenue at $1,938 million.

A major reason to worry is the sequential drop in operating margin for the fifth consecutive quarter. After reporting 31% margin in the December 2011 quarter, it has fallen consistently to 23.6% in the March 2013 quarter.

What can be intriguing is the fact that despite tepid revenue growth, the company has been able to add clients at a substantial rate. In the March quarter, it added 56 accounts. The gross client additions were 237 in FY13 compared with 172 in the previous year. This, however has not resulted in faster revenue and profit growth.

Considering the depressed guidance for FY14 and falling profitability of the business, the stock is expected to remain under pressure.