Infosys beats forecast but says future tough
Bangalore, July 10, 2009
Infosys Technologies beat forecasts with a 17 percent rise in quarterly profit and marginally raised its full year estimates, helped by currency gains but warned of a challenging global environment.
India's second-biggest software services exporter, which kicks off the sector's results, expects contract prices to drop further due to pressure from battered clients.
Infosys, rivals Tata Consultancy Services and Wipro also face competition from big players, IBM, Accenture and Hewlett-Packard who have raided their home-turf and are winning contracts.
"The broad numbers are better than estimates," said Apurva Shah, head of research at broking firm Prabhudas Lilladher in Mumbai. "The guidance is more a signalling tool indicating the degree of pessimism or gloom has come down. But it is not yet back to normal to lift the overall forecast."
The business environment was turbulent and punctuated by long decision making cycles and a recovery in technology spending was likely only by mid-2010, Infosys' chief operating officer SD Shibulal said. He expects prices to fall by 5 percent in the year ending March 2010.
Infosys forecast consolidated revenue to fall 3.1-4.6 percent to $4.45-$4.52 billion in the year to March 2010. It expects earnings to decline 11.1-12.4 percent in dollar terms.
That compares with its April forecast of earnings to fall 11.1-15.1 percent on a revenue fall of 3.1-6.7 percent.
Many clients of India's outsourcing sector, which had so far chalked up impressive rates of growth, are struggling to stay afloat, have gone bankrupt, or are tackling severe cost cuts, leaving them little room to boost technology spending.
Nasdaq-listed Infosys added 27 clients in April-June, lower than 37 in January-March and from 49 a year ago. The total tally of clients fell to 569 from 579 in Jan-March.
"We believe that in the short term the global economic environment will continue to be challenging," said CEO S Gopalakrishnan.
Infosys stunned markets in April when it forecast its first decline in annual revenue in dollar terms, marking a watershed for a sector that is a magnet for thousands of young job-seekers in the country.
Powered by an army of low-cost, English-speaking workers, India's outsourcing sector provides services ranging from managing complex computer networks and call centres to software coding to maintaining technology operations.
Analysts said reduced pace of deal cancellations and signs of stability in the key financial sector was positive, but the sector's growth rate was unlikely to pick up.
"Still there are concerns and their guidance shows they are not very optimistic about business recovery in the IT sector. Let's wait for a quarter or two," said KK Mital, head of portfolio management services at Globe Capital in New Delhi.
Research firm Gartner expects global IT spending to fall 6 percent in 2009, sharper than an earlier forecast of 3.8 percent.
Infosys, which develops applications, supply chains and runs back-office services, said net profit rose to 15.27 billion rupees ($314 million) in April-June, its fiscal first quarter, from 13.02 billion a year ago. - Reuters