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Infosys Cuts Revenue Growth F'cast On Europe Woes
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India's Rs 393,680 crore software services sector is bracing for a slower pace of outsourcing contracts as its clients put off new investments due to the troubles in Europe, Infosys's second-biggest market.
Bangalore-based Infosys, which has seen business sentiment worsening "marginally" since November, forecast dollar revenue growth of 16.4 per cent for the fiscal year to March 31, down from 17.1 per cent to 19.1 per cent projected in October.
"The European crisis has a bigger impact on the global markets. (In the) U.S., even though the latest economic indicators are slightly positive, the overall environment is still recovering," Chief Financial Officer V. Balakrishnan said.
"Customers are very cautious...We believe that cautiousness will remain for sometime. The Europe recovery is not in sight and it's going to take a longer time."
The company beat market forecasts with a 33 per cent rise in its third-quarter profit as a weak rupee boosted margins.
"Its prospect might not be as good as it has been over the last few years," said Michael Huang, manager of Yuanta India Fund, which owns Infosys shares, at Yuanta Securities Investment Trust in Taipei.
"But in the longer term, this is a company that has a solid track record of its management and financial quality."
Shares in Infosys, worth about Rs 160,580 crore, were down 7.3 per cent at 2,619 rupees by 0639 GMT, after falling as much as 7.7 per cent earlier to their lowest since November 30. The BSE Sensex was down nearly 1 per cent.
Infosys, whose outlook and management comments are seen as a barometer for the sector's health, also dragged down its local peers with sector leader TCS and third-ranked Wipro falling more than 5 per cent and 4 per cent, respectively.
"The reduction in its dollar revenue guidance is a matter of concern," said Dhananjay Mishra, an analyst with brokerage Sushil Finance in Mumbai.
Global spending on information technology will rise at the slowest pace in three years in 2012 as Europeans, worried about the region's sovereign debt crisis, are cutting back on investments, research firm Gartner Inc said last week.
Gartner predicted global IT spending would rise 3.7 per cent in 2012, down from its earlier estimate of 4.6 per cent. The forecast for Western Europe was slashed to a 0.7 per cent drop in spending from a previously expected rise of 3.4 per cent.
India's export-driven IT services industry competes with Accenture Plc and IBM for orders to maintain information technology infrastructure and build software applications.
More than half of Infosys's revenue is generated from the United States.
Infosys, which is also listed in New York, said consolidated net profit rose to Rs 2372 crore in the third quarter ended December 31 from Rs 1780 crore a year earlier, helped by an 8 per cent fall in the rupee.
Revenue rose 30.8 per cent to Rs 9298 crore, as the company, whose customers include BP Plc, Procter & Gamble Co and Volkswagen AG, added 49 clients - its strongest pace of client addition in more than three years.
A Reuters poll of 10 brokerages had forecast a profit of Rs 2310 crore on revenue of Rs 9220 crore.
Infosys said its operating margin rose 3 percentage points in the quarter from July-September to 31 per cent, with a weaker rupee adding 4.4 per cent to the margins in the reporting quarter.
The rupee was the worst performer among Asian currencies in 2011, losing nearly 16 per cent against the dollar.
Infosys added 3,266 employees in the December quarter to take the total headcount to more than 145,000. Balakrishnan said the company was maintaining its earlier forecast of adding 45,000 gross employees in this fiscal year.
Tata Consultancy, which has recently seen its quarterly profit growing at a faster pace among the top three companies, is expected to report a 23 per cent rise in its fiscal third quarter profit on Tuesday.
Infosys, the most favourite pick for fund managers among the top Indian companies, trades at 17.4 times its forward earnings, compared with 18.2 times for Tata Consultancy and 12.2 times for IBM, according to Thomson Reuters StarMine.