Bangalore: India’s second largest software services firm, Infosys Technologies Ltd, widely considered a weathervane of the Indian industry’s performance as a whole, exceeded analyst estimates for its net profit for the April-June quarter but investors beat down its stock and that of other IT companies after the firm maintained its earlier guidance in terms of dollar income and its chief executive said the business environment continues to remain difficult.
Infosys said its net profit in the first quarter of this fiscal year grew 20.7% from a year ago to Rs1,302 crore. This beat analyst forecasts on the back of a weak rupee against the dollar and increased orders from manufacturing clients such as Cummins Inc.
The company’s numbers did not indicate any slowdown in IT spending, especially in the US, which accounts for 62% of Infosys’ business. Nor was there a reduction in people utilization rates, an indication of which employees are working on projects, and which are on the bench, waiting for business. When IT spending in the US fell sharply in 2001, several Indian companies saw their benches swelling.
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Infosys raised its revenue forecast for the fiscal year (2008-09) to Rs21,622 crore from the earlier predicted Rs20,214 crore but maintained the dollar-based guidance at $5.05 billion, which failed to enthuse investors. Shares of the Bangalore firm lost 7.18% closing at Rs1,676 on a day when the Sensex, the benchmark index of the Bombay Stock Exchange or BSE, shed 3.3% to close at 13,470.
The BSE’s index for tech stocks was the biggest loser among sector indices, shedding 6.73%.
Infosys’ revenue for the quarter grew 28.7% over the year before period to Rs4,854 crore and saw a quarter-over-quarter or sequential increase of 7%. The rupee has also weakened against the dollar, the currency in which Infosys bills two out of every three customers, by approximately the same level during this period, indicating business volume expansion was flat. The company also saw a tax reversal of Rs31 crore in the quarter.
“The (business) environment is challenging. We need to be cautiously optimistic,” said S. Gopalakrishnan, chief executive officer and managing director of Infosys.
HOLDING STEADY (Graphic)
Aided by a weaker rupee, Infosys expects September quarter revenues to rise sequentially at 8.6% to Rs5,272 crore, a year-on-year growth of 28.4%.
“The (unchanged) dollar guidance is a bit disappointing,” said Harit Shah, an analyst tracking information technology stocks at Angel Broking Ltd, a Mumbai-based brokerage. “The IT sector is not yet out of the woods”.
Infosys anticipates customers in the US, which is facing an economic recession, to move more work offshore to low-cost locations such as India, but says such decisions are getting delayed. The company expects bulk of its projected growth to kick-in during the December and March quarters. Indian software vendors get around 60% of their revenues from clients in the US, who may spend less on technology in 2008 due to a recession in the country.
Good show? CEO and MD of Infosys S. Gopalakrishnan. (Hemant Mishra /Mint)
Infosys added 49 customers between April and June.
“The results are in line with expectations on the operational front, but it could have been better. The non-revision of dollar guidance is seen a bit of negative,” said Anurag Purohit, analyst at Religare Securities Ltd.
Operating margins, also called as Ebitda, or earnings before interest, taxes, depreciation and amortization, as a percentage of sales, dropped by two percentage points to 30.4% in the quarter to June, over the previous quarter.
In April, Infosys had expected margins in the quarter to drop by 3%, because of visa costs for employees who travel to onsite locations and wage hikes of 11-13% for offshore employees and 4-5% increase for onsite workers. Utilization, or the number of Infosys employees, including trainees, who are deployed on billable projects, dropped to 68.9% in the June quarter from 69.8% in the January-March period, but was half a percentage point more than the year-ago quarter.
“Margins for the quarter were impacted due to increases in salary and visa costs which to some extent were offset by rupee depreciation,” said V. Balakrishnan, chief financial offer.
Infosys has assumed the dollar value at Rs43.04 for the current quarter.
Infosys added 3,192 employees to take its total strength to 94,379. It has previously said that it will hire 25,000, including 18,000 freshers from campuses, in 2008-09.