Tags: Infosys Profit | Forecast Lag Analysts’ Estimates

Infosys Profit, Forecast Lag Analysts’ Estimates

Thursday, 13 Jan 2011 12:25 PM

Infosys Technologies sparked concerns about the outlook for India's showpiece outsourcing sector after it missed estimates for profit and future sales growth and warned of sluggish global economic growth.

Shares in India's No. 2 software exporter, which boasts fatter profit margins than its rivals, fell 4.2 percent and were set for their biggest fall in nearly one and a half years.

Infosys and its rivals Tata Consultancy and Wipro have been on a hiring spree in recent quarters and have given pay hikes of up to 20 percent to keep staff, raising hopes of a sharp pickup in outsourcing demand.

"We are particularly disappointed by Infosys' revenue growth forecast and if Tata Consultancy manages to post better results than Infosys, then people will switch over from Infosys because valuations for others look relatively attractive," said Taina Erajuuri, Helsinki-based portfolio manager at FIM India.

FIM India owns shares in Infosys and Tata Consultancy in its portfolio.
Infosys, whose sprawling Indian campuses house pizza and Subway outlets and golf courses, was the first to kick off results for the country's $60 billion IT services sector.

"The striking negative is that they failed to meet guidance, which is unusual in their case," said Ambareesh Baliga, vice president of Karvy Stock Broking in Mumbai. "The expectations from other IT companies will now taper down."

Infosys' net profit in the fiscal third-quarter ended December rose to 17.8 billion rupees ($396 million) from 15.6 billion a year ago. This compares with a Reuters poll of 18.2 billion rupees.

Analysts said the possibility of a sharper appreciation in the rupee, rising wages and intensifying competition from global firms such as IBM, Accenture and Hewlett-Packard were also risks for export-driven Indian outsourcers.

Consolidation is also picking up. This week, mid-sized software firm iGate sealed a deal to buy a majority stake in India's Patni Computer Systems for $1.2 billion, helping it to take on bigger rivals.

"I am very concerned and deeply worried (by the currency fluctuation) because the world over, all the economies are going through troubled times," Infosys Chief Financial Officer V. Balakrishnan told reporters.

A stronger rupee hurts margins of Indian software services exporters, who earn more than half their revenue from the United States.

The European Union's executive has called for greater emergency lending power to underpin the euro zone, with Portugal widely seen as the next candidate for a bailout.

"The weaker economic recovery in developed markets coupled with high unemployment and risk of sovereign default could impact industry growth," Infosys Chief Executive S. Gopalakrishnan said in a statement.
Europe is Infosys' second-biggest market that brought in about 22 percent of its revenue in October-December.

MISSES MARKET ESTIMATES

Infosys, which counts Goldman Sachs, BT and BP among its clients, expects its dollar revenue to rise 25.7 to 26.1 percent in the year ending March, below analysts’ expectations of 27 to 28 percent.

The revenue growth forecast was, however, higher than the 24 to 25 percent rise estimated previously by the company, which was founded in 1981 with $250 borrowed from the spouses of their seven founders in October.

In a recent report, research firm Gartner said global spending on technology is likely to rise 5 percent to $3.6 trillion in 2011, more than its previous estimate as the dollar's weakness helped push IT spending beyond its forecast for 2010.

Infosys shares, valued at about $40 billion, were the biggest losers in the benchmark Mumbai index which was down 1.7 percent, dragged by Infosys. Shares in Tata Consultancy dipped 0.5 percent.

Infosys added 40 new clients in the quarter ended December, its strongest pace of quarterly customer addition in three quarters. But revenue contribution from the United States, its biggest market, fell to 64.7 percent from 65.8 percent.

Infosys shares, climbed 13 percent in October-December, lagging a near 15 percent rise in the sector index and outpacing a 2 percent gain in the main index.

© 2017 Thomson/Reuters. All rights reserved.

 
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Infosys Technologies sparked concerns about the outlook for India's showpiece outsourcing sector after it missed estimates for profit and future sales growth and warned of sluggish global economic growth. Shares in India's No. 2 software exporter, which boasts fatter...
Infosys Profit,Forecast Lag Analysts’ Estimates
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2011-25-13
Thursday, 13 Jan 2011 12:25 PM
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