Bloomberg News

Infosys Net Beats Estimates on U.S. Outsourcing, Shares Jump

October 12, 2011

(Updates with comment from executive in seventh paragraph.)

Oct. 12 (Bloomberg) -- Infosys Ltd., India’s second-largest software exporter, reported second-quarter profit that beat analysts’ estimates as U.S. customers outsourced more services.

Net income rose 9.8 percent to 19.1 billion rupees ($387 million), or 33.36 rupees a share, in the three months ended Sept. 30, from 17.4 billion rupees, or 30.40 rupees, a year earlier, Infosys said today. Profit beat the 18.7 billion rupee median of 35 analysts’ estimates compiled by Bloomberg.

Infosys rose the most in more than two years in Mumbai trading, leading stocks of Tata Consultancy Services Ltd. and Wipro Ltd. higher, after earnings beat expectations for the first time in a year and the company raised full-year sales guidance. The Bangalore-based code writer joins Accenture Plc in posting better-than-expected earnings, signaling outsourcing demand remains buoyant.

“The dollar revenue outlook for the third quarter and the rupee guidance for the full year are positive,” Rohit Kumar Anand, an analyst at PINC Infinity.com Financial Services Ltd. said by phone. “Expectations were muted.”

The shares climbed 7 percent, the most since May 2009, to 2,679.35 rupees at the 3:30 p.m. close in Mumbai. The stock was the best performer on the benchmark BSE Sensitive Index, which advanced 2.6 percent. Tata Consultancy, India’s largest software exporter, rose 3.7 percent, while Wipro added 2.6 percent.

U.S. Focus

Revenue from the Americas grew 6.2 percent last quarter from the preceding three months, driven by increased outsourcing in the financial services, banking and retail sectors, Ashok Vemuri, head of Infosys’s Americas division, told reporters. That compares with 0.8 percent growth in Europe.

“We believe that the Americas are going to be a very major component of our growth,” Vemuri said. “There is some amount of trepidation with respect to Greece and Europe.”

India’s software companies may be regaining contracts in the U.S. that they lost after the collapse of firms including Lehman Brothers Holdings Inc. in 2008. While Infosys had said last year it was looking to expand more in Europe, the deepening financial crisis there makes the U.S. attractive again.

Growth in the banking and financial services sector in the Americas was 8.5 percent, versus 5.5 percent globally, Vemuri said. U.S. banks are “pretty confident in terms of what they’ll be able to achieve” he said. “Unless there is a complete disaster which is much larger than the Lehman crisis, they are fairly well prepared.”

Forecast Raised

Sales in the third quarter may range between $1.80 billion and $1.84 billion, Infosys said. Sales in the year ending in March may range between $7.08 billion and $7.2 billion, compared with a July forecast for as much as $7.3 billion, it said.

Infosys raised the full year sales guidance in rupee terms to between 335 billion rupees and 340.9 billion rupees from an earlier forecast for between 317.8 billion rupees and 323.1 billion rupees.

“The rupee guidance number for the full year seems to be a pretty strong one,” Sanjeev Prasad, an analyst at Kotak Institutional Equities, told Bloomberg UTV. “A percentage point change in the dollar guidance doesn’t really mean that the world has changed. A 17 percent to 19 percent growth is still a pretty decent number.”

The Indian code-writer renewed an outsourcing contract with Alcoa Inc. for five more years, and sold its banking software to Philippines-based City Saving Bank. Infosys added 45 customers last quarter taking the total to 647. It also signed one contract worth more than $300 million.

‘More Cautious’

Revenue in the second quarter totaled 81 billion rupees, compared with 69.5 billion rupees a year earlier, Infosys said. The company derived 65.3 percent of its revenue from companies in North America in the three-month period, up from 64.2 percent in the preceding quarter. Sales in Europe declined to 20.5 percent from 21.3 percent.

Macroeconomic uncertainties including in Europe “are leading to customers being more cautious about their investment decisions,” said Chief Executive Officer S.D. Shibulal, who presented his first earnings since taking charge in August. “At the same time, we are not seeing project cancellations or program cancellations. We are not seeing budget cuts as of right now. We’re also seeing investment in certain areas.”

U.S. business and government spending on IT goods and services, which includes computer equipment and outsourcing, will increase 6.4 percent to an estimated $802 billion in 2012, according to a Sept. 16 report from Forrester Inc.

Europe, meanwhile, will have the slowest growth in IT spending in local currency terms in 2012, the Cambridge, Massachusetts-based Forrester said.

“Some companies are hiking their IT budgets for 2012, and by a substantial number, at that,” said Pralay Kumar Das, an analyst with Elara Securities India Pvt. in Mumbai who rates Infosys “accumulate.” “The American incumbent IT players are doing very well, and in fact are raising their guidance. If there’s no reason for them to say demand in Europe and U.S. is falling off, then I don’t see why it should be the case for Indian vendors.”

--With assistance from Santanu Chakraborty and Ameya Karve in Mumbai. Editors: Anand Krishnamoorthy, Suresh Seshadri.

To contact the reporters on this story: Ketaki Gokhale in Mumbai kgokhale@bloomberg.net; Shikhar Balwani in Mumbai at sbalwani@bloomberg.net

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


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