Infosys signals sector recovery, boosts sector

MYSORE Tue Jan 12, 2010 11:14pm IST

Infosys Technologies Chief Executive Officer S. Gopalakrishnan speaks during a news conference in Mumbai in this August 2007 file photo. REUTERS/Punit Paranjpe

Infosys Technologies Chief Executive Officer S. Gopalakrishnan speaks during a news conference in Mumbai in this August 2007 file photo.

Credit: Reuters/Punit Paranjpe

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MYSORE (Reuters) - Infosys Technologies, India's No.2 outsourcer, raised its annual sales forecast as big financial services clients boost orders in an improving global economy, pointing to an industry recovery.

The company, a trendsetter for the $60 billion Indian outsourcing sector, expects spending on outsourcing to go up but said the appreciating rupee could hit profit margins in the short term.

Infosys shares rose 4 percent, their biggest gain since Nov. 11. On Nasdaq, they rose around 5.6 percent to $57.89.

The results, which showed quarterly earnings fell for the first time but were still above market forecasts, ignited shares in outsourcing stocks although the broader market fell 0.6 percent.

"The numbers point out that the environment has eased quite a bit. Confidence in business momentum looks like coming back," said Tejas Doshi, an analyst at brokerage Sushil Finance.

Bigger rival Tata Consultancy Services is expected to report on Friday that its quarterly profit rose 18.6 percent on the year.

Shares in both Tata and Wipro, another rival, rose nearly 5 percent.

The country's showpiece outsourcing industry, which manages computer networks and maintains technology operations for global firms, has resumed hiring and is raising salaries.

The rupee, which rose 3.4 percent in October-December, the higher salaries and tough competition from firms such as IBM and Accenture are key risks for a sector that earns more than half its revenue from the United States.

"We are seeing the benefit of recovery and the worst seems to be behind us," Infosys Chief Executive Officer Kris Gopalakrishnan told reporters.

"There is a concern, though it is becoming less and less, in terms of whether the recovery has really taken hold or not."

The rupee rose to its highest in over 15 months on Monday, and is set to rise 4 percent in 2010 on top of its 4.7 percent gain last year, driven mainly by inbound portfolio investment, according to a Reuters poll.

Bank of America-Merrill Lynch upgraded Infosys to "buy" from "underperform," after the company raised its full-year forecast.

Infosys said contribution to its revenues from its top clients grew 12.2 percent in the quarter.

Infosys, which counts Goldman Sachs, BT Group and BP Plc among its clients, expects earnings per share to rise 0.4 percent for the full year, compared with its previous forecast for a 6.7-7.1 percent drop.

It expects revenue in dollars for the year to March 2010 to rise 1.8-2.0 percent, reversing its October forecast for a drop of 1.0-1.3 percent.

"In the first three quarters, margins came out very well, much better than what we'd expected," Infosys Chief Financial Officer V. Balakrishnan said.

TENNIS COURTS, BOWLING ALLEYS

Infosys announced its results on Tuesday at its global training centre in Mysore, about 170 km from its Bangalore headquarters.

The 337-acre campus boasts an 8-lane bowling alley, cricket ground, tennis courts and running track, highlighting the perks offered by big Indian tech firms to retain young jobseekers in a fiercely competitive market where job-hopping is the norm.

Valued at $32 billion, Infosys shares more than doubled in 2009 while the broader market jumped 81 percent.

"Infosys is a company which gives conservative guidance and usually performs better than that, but this time the results are much better than expectations," said A.N. Sridhar, a fund manager at Sahara Mutual Fund in Mumbai, which owns Infosys shares across three of its funds.

JPMorgan expects consensus estimates to be upgraded and the stock to move up in the near term. "We remain fundamentally positive on the sector and Infosys," it said in a report.

Quarterly profit at Infosys, which develops applications, designs supply chains and offers backoffice services, fell 3.6 percent to 15.8 billion rupees ($351 million) under Indian accounting standards, from 16.41 billion rupees a year ago.

This was the first-ever year-on-year decline for Infosys. A Reuters poll had estimated a profit of 14.79 billion rupees.

Revenue fell an annual 0.8 percent to 57.41 billion rupees, even as it added 32 new clients in the quarter.

Under international accounting standards, net profit fell 4.9 percent to 15.6 billion rupees.

Infosys shares rose 13 percent last quarter, matching gains in the sector index and outperforming a 2 percent rise in the main market.

($1 = 45.1 rupees)

(Writing by Prashant Mehra; Editing by Ranjit Gangadharan, Anshuman Daga and Tim Dobbyn)

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