Infosys Technologies Ltd. (INFY - Analyst Report) reported fourth-quarter fiscal 2015 earnings per ADS from continuing operations of 44 cents, in line with the Zacks Consensus Estimate but 2.3% above 43 cents earned in the year-ago quarter.

The rise in the bottom line is mainly attributable to the company’s profitable Renew-New strategy that has knowledge-based learning at its core. Moreover, the company’s relentless investments in innovation have contributed toward improving relationships with client as well as strengthening its capabilities.  

For fiscal 2015, the company’s earnings per ADS came in at $1.76 reflecting a 15% increase compared with the year-ago tally of $1.53.

Quarter in Details

Total revenue for the reported quarter came in at $2,159 million, up 3.2% year over year. However, it fell short of the Zacks Consensus Estimate of $2,248 million.

On a sequential basis, healthy performance of Finacle and Edge suite acted as major drivers of revenue growth. Also, the company’s improved operating efficiency supplemented the revenues.

However, increased commoditization of the outsourcing business proved to be a headwind for the company, adversely affecting the pricing levels. This, in turn, hurt the top-line growth. Moreover, sluggish revenue growth was mainly the result of weak performance of the service business.

For fiscal 2015, revenues came in at $8,711 million, up 5.6% from fiscal 2014.

Infosys recorded an operating profit of $555 million compared with $534 million in the prior-year quarter, an increase of 3.9%. Also, operating margin for fourth-quarter fiscal 2015 increased 20 basis points (bps) to 25.7% from 25.5% in the year-ago quarter. Net profit after tax deductions came in at $498 million, up 2.3% year over year.

For fiscal 2015, Infosys recorded an operating profit of $2,258 million compared with $1,979 million in fiscal 2014. Meanwhile, operating margin expanded 190 bps to 25.8% from 23.9% a year ago.

Geographical Segment Performance

Infosys reported strong growth in regions like North America, where fourth-quarter fiscal 2015 sales rose 3% over the year-ago tally. Though Europe accounted for 23.1% of sales in the quarter, the figure inched down 0.9% from the year-ago tally.

Other two geographic segments, India and ‘Rest of the World,’ experienced both sequential and yearly declines. While India’s revenues in fourth-quarter fiscal 2015 edged down 0.1%, that from the Rest of the World fell 0.8% from the prior-year tally.
 
Industry Segment Performance

Revenues in the Insurance, Banking and Financial services (“FSI”) segment grew 0.1% sequentially, while that in the Manufacturing segment (“MFG”) division improved 0.8%. However, revenues in the Retail and Life Sciences (“RCL”) and Energy, Utilities, Communications & Services (“ECS”) divisions declined 0.3% and 0.6% year over year, respectively.

Other Financial Details

Infosys maintained a strong liquidity position with cash & cash equivalents of $4,859 million as of Mar 31, 2015, versus $4,331 million a year ago.

Ushering in good news for investors, Infosys increased its dividend payout ratio to 50% of post-tax profits, likely to be effective from fiscal 2016. Initially, the dividend payout ratio was 40% of post-tax profits.

Outlook
Infosys provided  revenue guidance for fiscal 2016 in the range of 10–12% on a constant currency basis. However, considering the impact of currency change, revenues are anticipated to grow in the range of 6.2–8.2%.

In Conclusion

Infosys experienced a challenging quarter in terms of foreign currency fluctuations and increasing commoditization of outsourcing business. Nevertheless, despite these challenges, the company remains confident that the Panaya acquisition will help it enhance market share in the cloud business.

Also, the company has signed an agreement to acquire Kallidus Inc., apart from being in talks to buy Airviz, which will help it strengthen its position in retail and personal health monitoring markets, respectively. At the same time, Infosys holds a strong commitment toward improving its corporate social responsibility, which, we believe will help it obtain a competitive edge over its peers.  

Infosys currently has a Zacks Rank #3 (Hold). Some better-ranked stocks include CoStar Group Inc. (CSGP - Snapshot Report), EPAM Systems, Inc. (EPAM - Snapshot Report) and Fair Isaac Corp. (FICO - Snapshot Report). All three stocks hold a Zacks Rank #2 (Buy).