Infosys shares slump as revenue growth likely at bottom end of range

MUMBAI Thu Mar 13, 2014 6:25pm IST

Employees walk in a forecourt at the Infosys campus in the Electronic City area of Bangalore September 4, 2012. REUTERS/Vivek Prakash/Files

Employees walk in a forecourt at the Infosys campus in the Electronic City area of Bangalore September 4, 2012.

Credit: Reuters/Vivek Prakash/Files

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MUMBAI (Reuters) - Shares of Infosys(INFY.NS) fell on Thursday after Chairman Narayana Murthy said revenue for the fiscal year ending March could grow at the lower end of the IT outsourcing company's 11.5 to 12 percent projection.

Infosys founder Murthy, brought back in June to revive the company's fortunes, also forecast an operating margin of 23.5 percent, down from 29.5 percent in the year to March 2011 before his return.

India's second-biggest IT outsourcer by revenue after Tata Consultancy Services Ltd (TCS.NS) had suffered a string of disappointing earnings results after focusing on proprietary software at the expense of bread-and-butter outsourcing contracts.

Murthy has sought to refocus on big-ticket contracts and build a "predictable earnings model" within three years of re-appointment. Even so, the company still struggles to boost revenue from its software platforms and high-margin consulting business.

"We are not very happy with our performance over the last two years," Murthy said on Wednesday in an investor presentation organised by British bank Barclays Plc (BARC.L) in Bangalore.

In January, Infosys raised its revenue growth outlook range to 11.5 to 12 percent from 9 to 10 percent forecast in October, citing expectations for increased demand for IT outsourcing.

On Wednesday, Murthy said without elaborating that growth was "much more like" 11.5 percent.

Infosys shares subsequently fell on Thursday, ending down 8.5 percent. The Nifty lost 0.4 percent.

Murthy's comment "came as a negative surprise to the street. We have been cautious as the guidance...was not very spectacular," said Dipen Shah, head of Kotak Securities' private client group.

Infosys shares have risen 52 percent since Murthy's June 1 return, hitting a record on March 6. In comparison, shares of Tata Consultancy have risen 45 percent.

Speaking at the same event on Wednesday, Chief Executive SD Shibulal said of particular concern was reduced spending on personal computers by high tech enterprises, and by retail customers pressured by holiday discount costs.

Infosys also suffered unanticipated cancellations and some projects were slowed down because of a lack of workers with relevant skills, Shibulal said.

"While we saw some initial results of our efforts in the last few quarters, we expect near-term performance to be choppy," he said.

"Many of the factors that have led to the recent slowdown will continue to impact our client spending, at least in the initial parts" of the fiscal year beginning April.

(Reporting by Rafael Nam; Additional reporting by Abhishek Vishnoi and Indu Lal; Editing by Christopher Cushing)

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