Infosys Ltd. (INFO), India’s second-largest software exporter, plunged the most in three months after cutting its sales forecast and reporting first-quarter profit that missed estimates.
Sales in the year ending in March may rise to at least $7.34 billion, Bangalore-based Infosys said in a statement today, lower than the $7.55 billion it forecast in April. Infosys also reported first-quarter net income that lagged behind analysts’ estimates for the first time in four quarters.
Infosys led shares of Indian software companies Tata Consultancy Services Ltd. (TCS) and Wipro Ltd. (WPRO) down on concern clients are reducing information-technology spending. Stamford, Connecticut-based researcher Gartner Inc. said this month that global IT spending would grow at a slower pace this year because of the euro zone crisis, a slowdown in China and a weaker recovery in the U.S. economy, the world’s biggest.
“This is a pretty large cut to guidance,” said Pralay Kumar Das, an analyst at Elara Securities India Pvt. with a reduce rating on Infosys shares. “It’s their client profile and their exposure in terms of revenue model.”
Infosys declined 11 percent at the close in New York, and earlier fell 8.4 percent to 2,264.40 rupees at the close in Mumbai. Bigger rival Tata Consultancy dropped 1.8 percent and Wipro, India’s third-largest software exporter, declined 4 percent.
The company sees “challenges” in the global economic situation and that’s “resulting in slower IT spends by large corporations,” Chief Executive Officer S.D. Shibulal said in the statement. One client in Europe canceled a $15 million contract, he told reporters, without identifying the customer.
Infosys, the first Indian code-writer (INFY:US) to list on the Nasdaq stock exchange, also slashed its earnings per American depository share to at least $3.03 from its April estimate of $3.12 to $3.17. Earnings per share in rupee terms may be 166.46 rupees, said the company which builds software programs and provides back-office support to clients such as BP Plc (BP/) and Neiman Marcus Group Inc.
That guidance “is the real shocker, the real negative surprise that they’ve delivered,” Manishi Raychaudhuri, head of Indian equity research at BNP Paribas SA, said in an interview with Bloomberg UTV. BNP’s expectation was for an EPS of 171 rupees, Raychaudhuri said.
Infosys also today reported first-quarter net income rose 33 percent from a year earlier to 22.9 billion rupees ($410 million). That lagged behind the 24.2 billion-rupee median of 31 analysts’ estimates compiled by Bloomberg. Sales at 96.2 billion rupees in the three months, beat estimates.
“Overall, the results are depressing,” said Ankita Somani, a Mumbai-based analyst at Angel Broking Ltd. “The management is seeing challenges.”
Full-year sales, measured in rupees, was raised from the April forecast and may now be at least 403.6 billion rupees, the company said. That beat the estimate of 389.9 billion rupees.
The Indian rupee was Asia’s worst-performing currency against the dollar in the three months ended June, with an 8.6 percent depreciation during the period. A weakening in the rupee inflates the repatriated value of overseas sales.
Infosys draws the majority of its revenues in dollars and euros from clients based in the U.S. and Europe. Currency fluctuations and “an economic slowdown or other factors that help affect the economic health of the U.S., Europe” were risk factors cited by Infosys in its last annual report.
Every 1 percent movement in the Indian rupee against the U.S. dollar has an impact of approximately 50 basis points on operating margin, the company said in its last annual report.
Infosys, which derived 65.1 percent of its revenue from companies in North America and 21.2 percent from Europe last year, added 51 clients during the quarter, at the gross level.
Global spending on information technology may grow at a 3 percent pace in 2012 to $3.6 trillion this year, Gartner said in a July 9 report. That’s slower than 7.9 percent last year as the euro zone crisis, a weaker U.S. recovery and a slowdown in China curb economic growth, the researcher said.
“We’re living in a very volatile world,” Chief Financial Officer V. Balakrishnan said after the earnings. “We are doing a large transformation and it’s a hard time to do that transformation. We are going to come out winners. We want to have the best portfolio of business.”
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