Business | Technology
Infosys predicts revenue growth as demand rises
Firming rupee expected to dent profit margins
- Reuters
- Published: 00:00 April 14, 2010
- 47 clients added between January and March
- 3.6% rupee gains over dollar from January to March
- $60b size of India's software outsourcing industry
Bangalore: Infosys Technologies, India's No 2 software services exporter, forecast stronger-than-expected annual revenue growth of 16-18 per cent, noting that a pick-up in global technology spending was improving demand for outsourcing.
However, a firming rupee on the back of rising foreign investment in India's fast growing economy may keep earnings growth muted for outsourcers, and Infosys expects its profit margins to take a hit this year.
"The results show that although there is buoyancy on the business front, there is pressure on margins," said Sandip Sabharwal, chief executive officer of portfolio management services at Prabhudas Lilladher.
"This pressure is not likely to go away as the rupee is still appreciating," he said. "I wouldn't buy Infosys at this point in time. I'm underweight on the IT sector."
Kicking off the earnings season for the $60 billion (Dh220.4 billion) sector, Infosys chief executive S. Gopalakrishnan said in a statement that the economic environment is expected to remain challenging.
Improving demand
Infosys, sector leader Tata Consultancy Services, and third-ranked Wipro have revived hiring, signalling improving demand for the outsourcing sector.
Infosys added 47 clients in January-March, its strongest pace of additions in seven quarters, taking the total tally to 575.
Infosys, which counts Goldman Sachs, BT Group and BP among its customers, expects its dollar revenue to rise 16-18 per cent in the year that started on April 1. Most brokerages were expecting growth of 12-15 per cent.
Bangalore-based Infosys, set up in 1981 with $250 borrowed from the spouses of their seven founders, expects earnings per share to rise 4.3-8.6 per cent for the full year.
But the strengthening rupee, which rose 3.6 per cent against the dollar in January-March after gaining 4.7 per cent in 2009, higher wages and competition from global firms such as IBM and Accenture are key risks for the industry.
"Infosys is known to be the best manager of margins in the industry," said Srivathsan Ramachandran, analyst at Spark Capital Advisors.
"If we are going to see margin pressure it is going to be right across, it is not going to be Infosys specific."
Infosys shares, valued at $35 billion, fell as much as 1.8 per cent in a broader Mumbai market down 0.5 per cent, and traded flat by 0445 GMT. Trading in the stock was almost four times the normal daily average.
Infosys, which develops technology applications, designs supply chains and provides backoffice services, said on Tuesday its January-March net profit fell to Rs16.0 billion from Rs16.15 billion a year ago.
Profit for the latest quarter included Rs480 million from the sale of the company's investment in OnMobile Systems Incorporated, Infosys said.
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