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Infosys Technologies Ltd (INFY - Analyst Report) reported first quarter 2014 earnings results, with earnings per ADS from continuing operations of 73 cents beating the Zacks Consensus Estimate of 69 cents by 5.7%. However, earnings were flat year over year while it declined 6.4% sequentially. Volatility in currency and the unstable macro environment impacted the first quarter profits.     

Quarter Details

Total revenue for the quarter was $1.99 billion, up 13.6% year over year and 2.7% sequentially. The company saw growth in retail and manufacturing and also in banking and insurance. The company delivered a decent quarter in terms of client additions.

During the reported quarter, Infosys added approximately 9 new clients for Infosys’ products and platforms. Apart from this, Infosys and its subsidiaries added 66 clients during the quarter. The company’s cloud based offerings continued to gain good momentum during the quarter.

Infosys recently collaborated with SAP AG (SAP - Analyst Report) to develop new mobile applications for the retail industry to enable consumer packaged goods (CPG) companies to contact with sales representatives and merchandisers anytime, anywhere through wireless tablets and smartphones. This, in turn, will help the companies to gain access to real time information directly from the field, giving them a competitive advantage over others.

This apart, Infosys during the quarter experienced a sigh of relief when its co-founder Narayana Murthy joined the company back.  

Revenue by Geographical Segment

During the reported quarter Infosys reported strong growth in geographic revenues from low single-digits to high double digits. Revenues from India, (though having comparatively less contribution towards total revenue) reported a robust growth of 48.6% followed by Europe which reported revenue increase of 25%. Coming next in the line is Rest of World with revenue surge of 12.3% followed by North America reporting top line growth of 9% year over year.

Revenues by Industry Segment

Revenues in the Financial Services segment (FSI) grew 11.6% while Manufacturing segment (MFG) revenues grew 16.1%. Revenues from the Retail and Life Sciences division (RCL) grew 18.3% while revenues in the Energy, Utilities, Communications & Services (ECS) grew 8.9% year over year.  

Income

The company recorded an operating profit of $468 million compared to $489 million in the prior-year period, reflecting a decline of 4.3% year over year. The operating margin also contracted 441 basis points year over year to 23.5% versus 27.9% in the comparable prior year quarter. The decline in margin is primarily attributable to the company’s liberal pricing to improve volumes and sales and also due to the currency volatility, going forward.  

Net profit after tax was $418 million for the quarter, up 0.5% year over year. However, sequentially, net profit declined 5.9%. Despite lower margins, the company was able to maintain its profitability due to its recent contract wins.  

Balance Sheet

Infosys maintains a strong liquidity position and had cash & cash equivalents of $3.6 billion as of Jun 30, 2013 compared to $4.02 billion as of March 31, 2013. 

Outlook

Concurrent with the earnings release, management also provided a brief outlook for fiscal 2013. Revenues are expected to increase in the range of 6% to 10%. In addition, Infosys intends increasing wages for its employees, because of which its margins will be impacted, going forward.

Infosys currently has a short term Zacks Rank #3 (Hold) rating on the stock. Two other companies operating in the same industry which have good prospects at the moment are Angie’s List Inc. (ANGI - Snapshot Report) and iSoftone Holdings Ltd. . Both have a Zacks Rank #1 (Strong Buy). 

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