Infosys results get market thumbs-down

Infosys Technologies, India's second-largest IT company, posted an 18.4 per cent increase in its consolidated net profit for the second quarter ended September 30, 2007, over the same quarter of the last financial year.

But the numbers failed to enthuse the markets, causing a slump in the country's biggest software stocks even as the Sensex rose 156 points to close at 18,814.

Since this is usually the company's seasonally best quarter, the markets reacted sharply to a perceived under-performance.

Fresh short positions were seen in front-line and middle-rung IT stocks. At the close of trading, the Infosys scrip was down almost 7 per cent, pulling down the IT index 5.6 per cent.

Satyam Computer Services also underperformed the IT index, posting a decline of over 7 per cent. However, TCS (down 4.72 per cent) and Wipro (down 2.99 per cent) withstood some pressure.

While net profit touched Rs 1,100 crore under Indian GAAP (generally accepted accounting principles), revenues increased 19 per cent to touch Rs 4,106 crore, implying good volume growth.

The numbers exceeded the quarterly guidance in rupee terms. Infosys had guided the Street that it would grow its top-line for the second quarter in the range of 14.5-15.7 per cent on a year-on-year basis.
 

BELLWETHER BLUES

Net up 18.4% YoY; 1.9% up q-on-q

Income: Rs 4,106 cr; 19% growth YoY; 8.8% q-on-q

EPS: Rs 19.25; YoY growth of 15%

Interim dividend: Rs 6 per share

48 new clients added

Net employee addition: 4,530; total employees: 80,543 as on Sept.30, 2007

However, on a sequential basis Infosys' net profit grew only 2 per cent, while its top-line moved up 8.8 per cent.

Going forward, Infosys has indicated its top-line will grow by 3.2 to 3.7 per cent (from Rs 4,106 crore to somewhere between Rs 4,238 crore and Rs 4,258 crore) on a sequential basis for the third quarter, ending December 31, 2007.

Moreover, the company had earlier scaled down its year-end projections (Rs 16,238 crore and Rs 16,433 crore, implying a growth of 16.9 to 18.3 per cent). The company now says that for the financial year 2007-08, it will grow its top-line 19.4 to 19.8 per cent, between Rs 16,588 crore and Rs 16,648 crore.

The company, meanwhile, saw a 2.8 per cent improvement in its operating margins or OPM this quarter.

However, the top-line percentage growth of 19 per cent is a clear indication that the days of 30 per cent plus growth rates are getting increasingly difficult as the currencies appreciate against the rupee.

To its credit, though, the company "" which sets the trend for the nearly $33-billion software exports industry from India "" has achieved this growth despite strong appreciation of the Indian rupee against the US dollar (almost 1.5 per cent this quarter. Every percentage increase affects margins by 30 to 50 basis points).

The company lost almost Rs 2,000 crore in revenue due to the currency appreciation over the last one year. Of this, Rs 527 crore was lost in the second quarter ending September 30, 2007.

It plans to tackle this by increasing its revenue productivity (around 1.9 per cent this quarter). It is managing to get 3 to 4 per cent higher billing from new contracts, and 2 to 3 per cent higher billing from existing ones.