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| Edited By: Bharghavi Nagaraju |Source: DNA |Updated: Mar 17, 2018, 04:40 AM IST
Infosys Technologies’ surprise profit drop shows a weak European economy could curb new orders and dampen a recovery for India’s outsourcing sector.
The company, a trendsetter for India’s $60 billion IT services sector, added 1,026 staff in April-June, its slowest pace of addition in four quarters — indicating a rebound from the global recession in the sector may be bumpy.
“There are still concerns lingering over Europe’s debts and if the economy there is weak, consumption should be weak too,” said Huey Yang, a fund manager with HSBC in Taipei.
India’s No 2 outsourcer’s profit fell 2.4% to Rs 1,488 crore in April-June and its sales contribution from Europe dropped to about 20% from nearly a quarter a year ago and 23% in January-March. Sales rose 13% to Rs 6,198 crore.
Chief financial officer V Balakrishnan said the company is cautious about the outlook on Europe and that the drop in billing rates will probably deepen to 2% this year. Infosys cut prices to retain and win business from European customers after the euro’s 6.3% decline against the rupee dragged down the value of sales in the region.
“There are specific clouds on the horizon and we don’t know if they are simple rain clouds ... or there is a cyclonic storm ahead of us,” said Infosys CEO Senapathy Gopalakrishnan. Turn to Page 20
The disappointing profit and hiring sent its shares down as much as 3.8% in a steady market. Trading volume was nearly 7 times the daily average over the past 30 days. The shares ended 3.4% lower in its worst single day fall in more than a year after hitting a record high on Monday.
Infosys forecast its 2010-11 dollar revenue to rise 19% to 21%, higher than 16-18% projected in April.
Known for its conservative outlook, the company has raised its full-year revenue growth forecast in dollar terms in the last three consecutive quarters.
Infosys and local rivals Tata Consultancy Services and Wipro have raised salaries by 10-20% on average to keep staff from being poached by global rivals.
“We see caution all around but mostly in Europe. The US clients have started spending. We are seeing traction in multiple segments,” said S Shibulal, Infosys’ chief operating officer.
Infosys forecast full-year profit margins would drop 150 basis points on a decline in prices for its services and salary increases. Salary hikes in the quarter impacted margins by 300 basis points. It raised its annual hiring forecast to 36,000 from 30,000 outlined in April and versus 27,639 staff hired last year.
“The numbers are really bad at operating levels, they are 40-50 basis points down than what we had expected,” said Shradha Agarwal, analyst at Batlivala & Karnani Securities. “The numbers would not see a significant upgrade from these levels.”
Some investors however said Infosys’ prospects remained strong.
“Despite what has been talked about globally, about euro and other regions, and the slowdown, I think clearly from our uptake perspective on the IT services, Infosys is very confident about growth and the overall industry is also very confident about growth,” said Nitin Jain, principal investment manager at Kotak Mahindra in Singapore, which owns Infosys shares.
Infosys reported under the International Financial Reporting Standards for the second successive quarter.
(With Bloomberg inputs)
