Infosys outlook disappoints again, shares slump

by Reuters    Oct 12, 2012

DisappointmentInfosys, India’s second-ranked software services provider, disappointed investors with weaker-than-expected margins and took a conservative view on its full-year earnings, sending its shares down the most in six months.

India’s information technology bellwether said it expects revenue of at least $7.34 billion, or growth of 5 percent, for the fiscal year ending March, unchanged from its previous outlook. The forecast excludes revenue from its acquisition of a Swiss consultancy in September.

Infosys also cut its view for fiscal-year earnings per American Depository Share to at least $2.97 from $3.03 previously, adjusting it for the currency exchange rate.

“The guidance remains weak from an earnings perspective. It’s been cut more than people thought it would be,” said Ankur Rudra, an analyst with Ambit Capital in Mumbai.

Analysts had predicted Infosys would revise up its revenue estimate to around 6 percent, boosted by its acquisition of Swiss consultancy Lodestone. In July, the company cut that forecast to 5 percent from its April estimate for 8-10 percent growth.

The company said it also expects operating margins will decline by 200 basis points in the current fiscal year.

Shares in Infosys slumped as much as 8.8 percent, but pared their losses after the company made clear that its revenue guidance excludes the Lodestone purchase.

Infosys caught investors by surprise in July when it cut its annual sales forecast more deeply than expected as global economic uncertainty hit tech spending.

Profit at Infosys, whose clients include Bank of America, Volkswagen and GlaxoSmithkline, rose to 23.7 billion rupees ($450 million) for the quarter that ended September, from 19.06 billion rupees a year earlier.

July-September net profit was forecast at 23.8 billion rupees ($448 million), according to Thomson Reuters data. Profit in the previous quarter grew 33 percent from a year earlier.

But operating margins in the latest quarter fell 160 basis points from the preceeding quarter to 26.3 percent.

Investors had seen some signs of stability for the global economy and hope for an uptick in demand, though the International Monetary Fund this week warned that the United States and Europe - the main markets for India’s $100 billion software and services outsourcing industry - could slide back unless they resolved their debt troubles.

Infosys agreed last month to pay about $350 million - its biggest buy to date - for Lodestone, a specialist in advising companies such as BMW and Roche Holding on how best to use SAP’s business management software.

The company has been trying to focus more on higher-value software and consulting, to better compete with the likes of U.S. consulting and outsourcing group Accenture.

Infosys mainly competes for orders in the more commoditized sectors of maintaining computer systems, software applications and helpdesk support. Rivals TCS and HCL Technologies have aggressively chased such contracts.

TCS is due to report its July-September results on October 19.

Investors were also rattled by news that Chief Financial Officer V. Balakrishnan would give up his position from October 31 to head the company’s business process outsourcing unit, banking services unit and India business unit.

“The bottom line, despite various assurances throughout the quarter from the company’s executives of ongoing stabilization at Infosys, the company remains in turmoil,” Cowen and Co said in a research note.

Balakrishnan will be replaced by Vice President finance Rajiv Bansal at the company, which has seen a slew of management changes in the last couple of years.