Infosys 21% guidance spawns relief

BANGALORE: Infosys Technologies Ltd, India’s second-largest software-services provider, forecast sales growth may accelerate this year as the US slowdown spurs clients to send more work overseas.

Revenue may rise as much as 21% to a record Rs 20,210 crore in the 12 months ending March 31, Infosys said on Tuesday. The Bangalore-based company’s forecasts beat estimates from Citigroup Inc and Macquarie Group Ltd.

Infosys led software exporters higher in Mumbai trading as the outlook helped ease concern that slowing global growth will force banks and telecommunications companies to scale back orders.

“The primary reason why work was outsourced to India was because the same quality or better quality could be done cheaper,” said Sanjay Sinha, chief investment officer at SBI Mutual Fund who oversees $6.5 billion including 1.13 million Infosys shares. “That is precisely the reason why you would continue to outsource to India when you are faced with a scenario where your business needs to cut costs.”

Infosys, the first Indian software-services company to report earnings this quarter, jumped 6.2% on the Bombay Stock Exchange. Larger rival Tata Consultancy Services gained 7.4%. Wipro Ltd, ranked third, rose 4.5% and Satyam Computer Services climbed 4.4%. The computer service providers were the four biggest decliners on the equity benchmark Sensitive Index last fiscal year.

“We continue to see greater growth opportunities in Europe,” chief operating officer S D Shibulal said in the statement. The region contributed 29.3% of sales in the fourth quarter, compared with 26.6% a year earlier. North America generated 60.7%, down from 62.6%. Earnings will gain to Rs 92.32 to Rs 93.92 per share in the year that started April 1 from Rs 81.26, Infosys said.

Sales may climb to Rs 19,890-20,210 crore this fiscal year, after rising 20% to Rs 16,690 crore in the year ended March 31, Infosys said.

American Express and Goldman Sachs Group are among banks and financial services companies that are likely to increase contracts awarded to Infosys for work to be done offshore, or in low-cost locations such as India, in the 12 months to March 31, JM Financial’s Nagarajan said on April 7.

Still, banks and finance companies, which accounted for 27% of sales in the fourth quarter, are taking longer to award contracts, chief executive officer S. Gopalakrishnan said. The companies, whose contribution to sales fell from 29.6% a year earlier, haven’t cut any contracts, he said.

Of Infosys’s 100 largest customers, 76 have maintained or reduced their spending plans for 2008, with 19 clients cutting their budgets by 10%, Gopalakrishnan said. About 24 customers have increased their proposed budgets, he said in an interview. The 100 account for 82% of sales.

In the fourth quarter, Infosys reported net income rose 9.2% to Rs 1,250 crore from Rs 1,140 crore a year earlier. Sales climbed 20% to Rs 4,540 crore.

The profit growth was the slowest in at least eight years after the company increased wages by 15% a year ago. Infosys on April 1 raised salaries in India by about 12%, and increased wages for workers in the US and Europe by 4-5%, Gopalakrishnan said.
Sales growth in the current fiscal year will predominantly be in the six months ending March 31, Gopalakrishnan said.