Infosys Posts 24% Profit Gain as Outsourcing Demand Increases – Bloomberg

Infosys Ltd. (INFO) fell the most in three
months in Mumbai trading as India’s second-largest software
services exporter cut its sales-growth forecast and said higher
wages and currency fluctuations will hurt profitability.

The shares declined 5.4 percent to 2,395.35 rupees at the
close, the biggest drop since July 12. Bangalore-based Infosys
cut its forecast for this fiscal year’s revenue to 395.8 billion
rupees ($7.5 billion) from a July estimate of 403.6 billion
rupees.

Chief Financial Officer V. Balakrishnan today said
operating profit margin will decline by 2 percentage points
because of wage increases and fluctuations in the rupee, while
Chief Executive Officer S.D. Shibulal said the business
environment continues to be “challenging.” Researcher Gartner
Inc. has forecast that global information technology spending
would grow at a slower pace this year.

“The guidance is a disappointment — it shows that there
is some problem with Infosys’s core business,” said Ankita Somani, an analyst at Angel Broking Ltd. in Mumbai. “It tells
us that business is under significant pressure.”

The company had an operating profit margin of 26.3 percent
in the three months ended September, Balakrishnan said in
Bangalore. That compares with 28.2 percent in the year earlier
period, according to data compiled by Bloomberg.

Infosys, whose clients include BP Plc (BP/) and Volkswagen AG (VOW),
has slid 13 percent this year, compared with a 21 percent gain
for the BSE India Sensitive Index, or Sensex.

Quarterly Profit

Net income rose 24 percent to 23.7 billion rupees in the
three months ended September, Infosys reported today. That
compares with the 23.8 billion-rupee median of 41 analysts’
estimates compiled by Bloomberg. The outsourcer kept its
forecast for this year’s revenue in dollar terms of at least
$7.34 billion.

The company on Sept. 10 said it had agreed to buy Swiss
management consulting company Lodestone Holding AG for 330
million Swiss francs ($353 million), adding more than 750
consultants and 200 customers in industries including
manufacturing, automotive and life sciences.

Infosys hasn’t included revenue from Lodestone in its
forecast for annual sales as the transaction has yet to be
completed, Balakrishnan said. The company expects to include
revenue from Lodestone in its next forecast in January, he said.

‘Challenging’ Environment

Revenue rose 22 percent to 98.58 billion rupees, the
company said. That compares with the 99.3 billion-rupee median
of 43 analysts’ estimates.

“The environment has not changed at all, it is still as
challenging as before,” said Shibulal.

“The U.S. environment is challenging,” the CEO said.
“Europe continues to be in turmoil and that makes our clients
less confident, their ability to take decisions is lower.”

The Indian rupee was Asia’s best-performing currency
against the dollar in the three months ended September, with a
5.3 percent appreciation in the period.

Infosys, which derived 65.1 percent of its revenue from
companies in North America and 21.2 percent from Europe last
year, draws most of its revenue in dollars and euros from
clients based in U.S. and Europe. A stronger rupee hurts Infosys
by reducing the value of repatriated earnings.

Every 1 percent movement in the Indian rupee against the
U.S. dollar affects operating profit margin by about 0.5
percentage point, the company said in its annual report.

Infosys, which designs and builds software programs,
maintains computers and provides IT and outsourcing services for
customers such as GlaxoSmithKline Plc and ING Belgium, added 39
clients during the quarter, ending with a total of 715.

To contact the reporters on this story:
Suresh Seshadri in Bangalore at
sseshadri1@bloomberg.net;
Ketaki Gokhale in Mumbai at
kgokhale@bloomberg.net

To contact the editor responsible for this story:
Michael Tighe at
mtighe4@bloomberg.net