Every quarter, India’s technology giants release results that can send their stocks sharply higher or lower within minutes. For new investors, the flood of figures can feel overwhelming, yet a few key indicators tell most of the story. The Infosys Share Price, for instance, often moves on guidance revisions as much as on reported profit. Learning which numbers deserve attention is a skill that pays off over many years of investing. Equally, observers of the TCS Share Price know that the market frequently looks past headline profit toward the quality and direction of the underlying business.
Revenue Growth in Constant Currency
The first metric that an investor should track is revenue growth in terms of constant currency. This is to see the underlying sequential growth, after factoring out the distortion caused by exchange rate fluctuations. For instance, a company’s revenue in rupees may grow even if there hasn’t been any pickup in demand, as the strengthening of the rupee makes every dollar more valuable in terms of local currency.
Besides sequential growth, investors can compare the current year’s revenue growth with the previous year’s growth to understand macro trends. While sequential growth will highlight inflexion points, growth on a year-on-year basis tends to smooth out seasonal distortions such as furloughs and festive slowdowns in the December quarter.
Operating Margin and Cost Leverage
Operating margin reflects the proportion of revenue that is left after employee costs in the form of salaries and other costs related to delivery. Since employee costs constitute the single largest component, changes in wages, utilisation and offshore ratios directly impact operating margins. Companies tend to talk about headroom in levers such as pyramid optimisation, automation and pricing power.
A change in operating margin, even by a fraction of a point, can have a major impact on the bottom line, given the huge revenue base (in rupees) that goes into the calculation. Therefore, it is important to read the fine print and understand if the change is transitory or structural.
Deal Wins and Guidance
The value of deals won during the quarter is an indicator of the pipeline of revenue that is likely to be recognised in the future. Announcements of large deals reflect client confidence as companies commit to a multi-year digital transformation journey with the vendor. However, the numbers have to be read along with the time of conversion, as it takes time to build solutions for customers before revenue can be recognised.
Guidance for the year is perhaps the most interesting set of comments in an earnings release, as it gives cues about the outlook for the stock. Companies that hike guidance usually see their stock prices jump on the back of increased optimism. Conversely, even a strong quarter can be negated by disappointing guidance, since expectations for the full year will not be met.
Cash Flow, Headcount and Attrition
Free cash flow as a proportion of net profit indicates the extent of profit being reinvested back into the business. Additions to net headcount provide information on the trajectory of growth as companies ramp up hiring. Attrition is an important metric to keep track of as it directly impacts costs through increased spend on replacements and the loss of productivity. It is an important barometer for the health of the employee value proposition.
Pulling It All Together
There isn’t a single metric to assess the health of a company. A prudent investor will put together a cheat sheet of metrics across multiple parameters to compare across quarters and spot trends that aren’t immediately obvious when looking at day-to-day price movements.
