Bangalore: A bullish forecast from Infosys Technologies Ltd, a company known for issuing conservative guidances and then exceeding them, cleared some of the uncertainty surrounding the impact of the recession in the US on Indian software firms and helped the benchmark index of the Bombay Stock Exchange rise to its highest level this month.
Meanwhile, a decision by the company to increase the quantum of profits it distributes as dividend to 30% from 20%, effective 2008-09, brought cheer to investors.
Challenges ahead: Infosys campus in Bangalore. The company says revenue growth in the first half of the year would remain flat. (Photo: Madhu Kapparath/ Mint)
Infosys, which declared its results for the fourth quarter of 2007-08 ending 31 March, said it expected revenues to rise by as much as 21% to Rs20,214 crore as the slowdown in the US, the largest IT market in the world, forces companies to send more work overseas.
Chief executive S. Rs.Kris’ Gopalakrishnan said much of the growth would come in the second half of 2008-09 starting October. Infosys said revenue growth in the first half would remain flat on account of a sluggish US economy, delays in decision-making by some customers who have restructured operations and some project cancellations.
“The projections are robust, considering the fact Infosys generally comes out with conservative estimates,” said Arun Kejriwal, head of research firm KRIS, some of whose clients own Infosys shares.
Indian software firms derive around 60% of their revenue from customers in the US, and analysts feared that these companies would reduce their IT spends because of a recession in that country. Infosys’ results were also awaited because analysts believe the company, which is usually among the first to declare its results, sets the tone for the earnings season that follows. The earnings of companies for the March quarter will likely decide which way the stock market indices, which have swung wildly since January, will move.
Concerns that US companies may pare orders as the economy falters, as well as the Indian rupee’s rally against the dollar, the currency in which firms such as Infosys bill clients, made Infosys the worst performer last year among the 30 stocks that constitute the Sensex. That might not happen this year, said one expert.
“The earnings per share guidance at the upper end is more or less in line with what people were expecting. There is certainly an impact onmargins and some pressure due to a possible slowdown is visible in the guidance... I don’t expect the stock to be hammered because of this,” said Neeraj Dewan, director, Quantum Securities.
The outlook seems to reflect the larger trend in the offshoring business. Accenture Ltd, the world’s second largest technology consulting firm, which has a significant presence in India, raised its forecast last month.
Still, the fact that much of the growth will come in the second half of the year will make the company’s task more challenging said an analyst.
“Execution will be a challenge as growth will be more back-ended, and (this) may put pressure on the last two quarters (of the fiscal),” said Anurag Purhoit, an equity analyst who tracks the IT sector at the Mumbai office of brokerage Religare Securities Ltd.
Infosys posted a net profit of Rs1,249 crore for the fourth quarter, up 9.2% from a year ago. This was the slowest profit growth since the dotcom bust. Revenue grew 20.4% to Rs4,542 crore. For the full year, it posted revenues of Rs16,692 crore, up 20.1%, and a net profit of Rs4659crore (20.8% up).
It added 2,586 employees in the quarter to March, taking its total workforce to 91897. It expects to hire 25,000 professionals in 2008-09.
Infosys shares closed 6.2% at Rs1,510.8 on BSE. In early US trading, its American Depository Receipts rose 5% to $38.4
Reuters and Bloomberg’s Harichandan Arakali contributed to this story.