Infosys profits grow 18.4%; ups guidance

Infosys profits grow 18.4%; ups guidance

Bangalore: The second quarter, July-September profits of Infosys Technologies Ltd, India’s second largest software company, grew by 18.4% year-on-year to Rs1,100 crore, boosted by increased business, better utilization of workers and financial income, and met analyst expectations.

Rupee revenues at the software bellwether in the second quarter stood at Rs4,106 crore, versus Rs3,451 crore in the July-September quarter last year. This jump of nearly one-fifth was significantly lower than the 50% surge in revenues in the same quarter in fiscal 2007, 31.3% in the year before and 51.8% in fiscal 2005. The company’s performance was a little better than its guidance, and it also upped its guidance for the year ending March 2008.

The tech firm increased its rupee-revenue guidance for the year upwards by up to 1.2% to between Rs16,588 crore and Rs16,648 crore and its dollar-sales forecast by up to 2.9% to $4.16-$4.17 billion (Rs16,348.8-16,388.1 crore) for the year. In July, Infosys had lowered its rupee-revenue guidance when faced with a strengthening rupee.

However, investors who had expected an even higher guidance hammered down the Infosys stock nearly 7%, and other tech shares. Shares of Infosys fell the sharpest in nearly 40 months on Thursday to Rs1,976 each. “The market has reacted negatively as there is a low hike in the guidance for the next quarter," said Rajeev Ramchandani, an analyst at Religare Securities Ltd. Shares of market leader Tata Consultancy Services Ltd dropped 4.7%. Wipro Ltd 3%, and Satyam Computer Services Ltd 7.5%.

This was despite the fact that Infosys’ Ebitda margins, or earnings before interest, taxes, depreciation and amortization, as a percentage of sales, a key measure of the profitability of its operations, was 31.2% in the July-September quarter, almost unchanged from 32.1% in the same quarter last year. Growth projected for the current October-December quarter was modest. Infosys has forecast revenues of between Rs4,238 crore and Rs4,258 for the third quarter.

“Generally, we are seeing all-round growth; we are seeing both the US and Europe markets growing," S. Gopalakrishnan, chief executive officer of Infosys, told Mint in an interview. Excerpts:

The second and third quarters generally are the strongest for Infosys. But the forecast seems to be not matching expectations.

We have given our guidance... that is what we see today from the numbers perspective. We also have seen in the past, when there has been slowdown in the economy, offshore (work) has actually increased and continues to grow. Now, the key event we will be watching is the budget for next year that will be set in the first quarter. Current indications are that offshore should benefit.

If there is a slowdown, will you see a dip in business and then growth?

Today, our business is very broadbased. Even our largest client (7.8% of revenues) is not a significant part of our revenue. We are not seeing a recession at this point of time.

You haven’t been able to build a strong consulting business.

Consulting alone constitutes around 5% of our revenues and it is growing and we hope to accelerate this.

Infosys has been silent on acquisitions despite a growing cash reserve.

We are continuing to look (at companies). We don’t want to get pushed into doing something that will not be beneficial. We will look at smaller acquisitions between $300 million and $500 million. But if there is some opportunity to look at something larger, we will evaluate it but the likelihood is probably lower.

Have you lost out in the local market to competitors such as IBM and Accenture?

No, not at all. Look at what we are doing outside India. (With) us going there, you can’t say that they have lost out. Similarly, Indian companies here have not lost out.

Abhineet Kumar and Regina Anthony of Mint and Bloomberg’s Chitra Somayaji and Shailendra Bhatnagar contributed to this report.