Information technology bellwether Infosys on Tuesday reported a decline in its operating margins in its results for the first quarter of 2011-12, in what could be an indication of things to come from peers scheduled to announce their results over the next few days.
Infosys has always focused on high operating margins and by far always had the highest margins in the industry - close to 30 per cent. This quarter was different. The company saw a dip of 2.97 per cent in operating margins. It reported revenues of $1,671 million, a growth of 23 per cent year on year. The share price plummeted by 4.27 per cent to Rs 2794.25.
R Murali Krishnan, director of research at Ambit Capital, said: "Wage costs has grown by three percent, whereas pricing rise has been 1.1 per cent so they have not been able to pass on the cost." He said the employee utilization has been on the lower side of 75 per cent, which has affected operating margins.
As for the decline in the share price, analyst attribute it to investor worries over the restructuring under way at the company. "The investors are not concerned about the succession planning. All they want is the growth coming back," says Pankaj Kapoor, IT analyst at StanChart Research. Kapoor explains that because of the restructuring the order book numbers would have any ways got impacted.
Overall, the IT industry seems to be at a cusp where the operating margins are going to be affected. A week back several reports on the first quarter results suggested that margins would be affected by 100-200 basis points for most players.
Tata Consultancy Services is due to announce its results on July 14, Wipro on July 20 and HCL Technologies on July 27.