Infosys cautious about short-term growth

Infosys Technologies Ltd, the second largest Indian IT exporter, came out with a positive surprise on Friday when it reported 17% year-on-year rise in its quarterly net profit at Rs 1527 crore. Its topline, reported at Rs 5472 crore, beats the ET Intelligence Group’s revenue estimate of Rs 5245 crore. The stock market took this news positively and the Infosys stock surged by 2.5% to a flat Sensex during morning trade.

Infosys’ European business, which accounts for around one-fourth of total revenue, seems to have performed badly compared to business from US. Its US business declined by 2.7% following 6% appreciation in the rupee against the dollar. Revenue from the European market was expected to see some buoyancy given 8.5% depreciation in the rupee against the pound. However, it fell by 1.3% sequentially. The management has hinted at increased spending in sales & marketing activities. Given its poor show in Europe, a significant pie of this expenditure may go towards strengthening its sales & marketing activities in this region.

The operating margin for the June ’09 quarter expanded by around 50 basis points compared to previous quarter. However, this is not expected to continue for the rest of the year. The management expects the operating margin for the financial year 2009-10 to decline by around 150 basis points on account of increased spending on sales & marketing and lower utilization rates, among others.

Though June quarter is relatively better, the management has lowered the guidance for the full year keeping most of the negative factors in mind. It would be interesting to see whether other large Indian IT companies are also going to report a similar set of good numbers for the quarter ended June ’09.

Beating estimates, Infosys raises hopes

The software services exporter’s revision of its 2009-10 revenue forecast in dollar terms was due to cross-currency movements.

The country’s second largest software services firm, Infosys Technologies Ltd, beat profit estimates for the first quarter (Q1) as it cut jobs and costs. The company raised its full-year forecasts, and the stock markets responded favourably to its scrip as well as those of other large technology firms.

The exchange’s benchmark Sensex index declined 1.84% to 13,504.22 points.

However, Infosys, considered a standard bearer for India’s technology sector, expects contract prices to drop further by 5% during the fiscal year, due to pressure from clients and stronger competition from foreign rivals such as International Business Machines Corp. (IBM) and Accenture Ltd amid a global slowdown. But it also sees clients in the downturn-hit US moving more work offshore to low-cost locations such as India, though they may take a while to resume spending on technology.

“The consensus opinion is that recovery is expected by the middle of 2010,” chief executive officer and managing director S. Gopalakrishnan said after announcing the results on Friday. “This is still a growth industry; we have to prepare ourselves for that.” Infosys’ higher profit and raised forecast, and the talk of a potential recovery after months of gloom sent the company’s shares up 5% in intraday trading, before they ended the day 3% higher at Rs1,726.50 on the Bombay Stock Exchange. The exchange’s benchmark Sensex index declined 1.84% to 13,504.22 points.