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Infosys Forecasts Tepid Revenue Growth, Shares Dive

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On Friday, 12 April 2013, Infosys forecast full-year sales growth that missed analyst expectations by a margin of up to 50 per cent, dimming investor hopes that India's No.2 software services firm will soon start reaping the benefits of its strategic revamp.

Infosys forecast on Friday dollar revenue to grow between 6 per cent and 10 per cent for the fiscal year that began this month. That was less than analysts' estimates for revenue growth of as much as 12 per cent, and slower than a gain of 12 to 14 per cent expected for the overall industry. Shares of Infosys tumbled 21.3 per cent.
 
The crashing Infosys scrip also saw the BSE benchmark index Sensex tanking nearly 300 points. The 30-share index closed at 18,242.56 points, down by 299.64 points or 1.62 per cent — the largest fall since February 26, 2013, when it plunged by 316.55 points or 1.64 per cent. Among 30 Sensex stocks, 16 closed in the red, wiping out most of previous two days' gain of 1.73 per cent.
 
"The main reason for the decline in benchmark indices was the big fall in share price of Infosys," said
Nagji K Rita, Chairman & MD, Inventure Growth and Securities.

"Infosys fell over 20 per cent, its biggest fall since 2003, after delivering disappointing Q4 numbers and FY14 dollar revenue guidance of 6-10 per cent, which is below Nasscom estimates," Sanjeev Zarbade, Vice President (Private Client Group Research), Kotak Securities said.
 
The BSE barometer commenced sharply lower with a downside gap of over 265 points and remained in negative terrain throughout the day.
 
The 50-issue Nifty of the National Stock Exchange also slumped by 65.45 points, or 1.17 per cent, to 5,528.55.
 
The company, which had been losing market share for about two years to industry leader Tata Consultancy Services Ltd (TCS)  and smaller rivals like HCL Technologies Ltd, has cut its pace of hiring to the slowest in three years with the aim of boosting profitability. Yet Infosys said on Friday that margins will be under pressure in the near term.
 
"The (revenue) forecast looks quite conservative, which is a concern. Fiscal 2013 was also not very good for Infosys," said K.K. Mital, CEO for portfolio management services at Globe Capital in New Delhi. "This looks like company-specific problem. Even mid-cap companies are expected to perform better than this."
 
Infosys, once seen as a trend-setter for India's $108 billion outsourcing services industry, has turned in a string of disappointing results, except for in January when it surprised the market by raising its outlook.
 
The rough patch was caused in part by the challenge of implementing its "Infosys 3.0" push for revenue through the development of its own software platforms, to differentiate its services from those of its competitors, amid sluggish demand from clients in its core western markets.
 
In a sign that this strategy has yet to deliver, its products and platforms services contributed 5.7 per cent of its overall revenue in the March quarter, down from 6.2 per cent a year earlier.
 
Infosys lost more than $5 billion in market value after the forecast was announced, with its shares on track to post their biggest single-day percentage fall since April 2003.
 
Q4 Profit
Consolidated net profit for the fiscal fourth quarter ended March 31 was Rs 2,390 crore, compared with Rs 2316 crore a year earlier. Revenue for the quarter rose 18 per cent to Rs 10,450 crore.
 
That compared with an average estimate of Rs 2300 crore in a survey of 18 analysts by Thomson Reuters I/B/E/S. Revenue was estimated to grow 21 per cent to Rs 10,700 crore.
 
Infosys said it expected margins and pricing for its services to be under pressure in the short term, after reporting that billing rates fell 0.7 percent in the fourth quarter from the December quarter.
 
Analysts also said the absence of an outlook for earnings per share from the company, which stopped giving quarterly forecasts last year, was a reflection of uncertainty.
 
The company added 56 clients in the quarter, taking the total to 798, compared with an addition of 52 last year.
 
"We are confident, considering the deal wins in the last one year and the wins in the recent past, we feel that we are well positioned for the next year," Rajiv Bansal, chief financial officer, told reporters.
 
Infosys also said it would set aside up to $100 million to invest in products, platforms and solutions ideas.
 
"Because of this volatility we also understand that growth is the biggest challenge for us and that we've to get the growth back, which will require some investment, accelerating investments in the marketplace, also differentiate our service offering," Bansal said.
 
Infosys said it added 1,059 employees during the quarter, the slowest pace of additions in three years, in what could be a sign of the times in which India's IT outsourcers are looking to trim down on the hordes of entry-level staff.
 
Infosys is the first in the sector to report quarterly earnings. TCS is expected to report a 22 per cent rise in fourth-quarter net profit on Wednesday, while third-ranked Wipro is seen posting a 15 percent rise on Friday, according to analysts.
 
At 0725 GMT, Infosys shares were trading down 19.7 per cent. Shares of Wipro fell 4.8 per cent and TCS lost 3 per cent. The broader market was down 1.7 per cent.
 
(Agencies)