Infosys revises FY10 revenue estimates, Q2 net up 7.5%

BANGALORE: In a sign of things to come for India���s $60-billion outsourcing sector, the country���s second biggest software services exporter, Infosys Technologies, revised its full-year revenue guidance upwards and also managed to maintain its profit margins, helped by currency fluctuations and increased demand for offshore outsourcing from banking customers.

Infosys said its net profit for the quarter ended September 30, 2009, rose 7.5% year-on-year to Rs 1,540 crore and revenues grew 3% to Rs 5,418 crore. The company reported a sequential growth of 2.1% in revenues and 0.9% in net earnings.

���In the second quarter, the business climate has improved,��� Infosys chief executive and managing director S Gopalakrishnan said on Friday. ���Clients are now looking to invest in a few strategic initiatives and relationships to maximise value from opportunities when the economic downturn ends.���

Infosys revised its revenue guidance for the full fiscal, projecting to touch in the range of Rs 21,961-22,055 crore against Rs 21,416-21,747 crore provided at the end of the first quarter.



Infosys��� performance met the expectations of many financial analysts tracking the sector, who had projected the company���s revenues to grow 1-3% sequentially during the September quarter. Equity firm Thomas Weisel Partners, for instance, had projected Infosys to report second quarter revenues of $1.15 billion, reflecting a sequential growth of 1-2%, higher than $1.11-1.13 billion guided by the company earlier this year.

Some others, though, had expected Infosys to report better sequential earnings. Financial brokerage firm CLSA had forecast Infosys to grow its September revenues by around 3.5% sequentially, helped by cross-currency gains and an uptick in demand for offshore outsourcing.

Despite concerns around Infosys��� profit margins, the company was able to sustain its margins at around 34.6%. ���Volume growth has been good and increased M&A activity has translated into a higher degree of spend, which was not seen earlier. Our offshore component volume has increased by 3%,��� said Infosys chief financial officer V Balakrishnan. Infosys is currently working on five M&A-based projects, with customers such as RBS and ABN Amro integrating their business and IT systems.

Over the next two quarters, however, Infosys expects the margins to dip because of the wage hikes and any potential appreciation of the rupee. The company announced wage hikes of 8% for offshore employees and 2% for onsite employees. The company also said that it will hire around 20,000 new professionals this year, up from the 18,000 that Infosys had projected earlier. During the September quarter, Infosys hired 1,548 employees, taking its total staff strength to 1,05,453.

Meanwhile, some experts continue to be concerned about whether Infosys can sustain its margins, going forward.
According to a recent Edelweiss report, Infosys��� premium pricing (especially during 2006-08), focus on the three verticals of BFSI, manufacturing and telecom, and its ability to defend industry leading margins contributed to the company���s positioning. However, the factors that helped Infosys during past few years in building its leadership position seem to be shifting.

���To sum up, our long-term position is that Infosys��� leadership and its ���must own stock��� status in the sector will be increasingly distributed towards the others (TCS and Wipro)��� Edelweiss analysts Viju George, Kunal Sangoi and Pratik Gandhi wrote in their report last month. Mr Gopalakrishnan, though, remains confident about his company���s ability to sustain its margins and profitable growth.

���To me, price is something the market determines, but margin is determined by us to a great extent,��� he said. Customers such as Royal Philips Electronics, which awarded a $250-million back-office contract to Infosys around two years ago, continue to do more work based on utility-based pricing models wherein Infosys is paid based on the number of transactions. For Philips, outsourcing of non-core activities has been a cautious journey, which started with the Infosys engagement.

���Today, Infosys has expanded the shared services beyond just finance and administration to even purchasing . We also started with transaction based, or utility model,��� said Maarten J de Vries, IT and supply management, member group management committee, Royal Philips Electronics. ���Infosys has been able to deliver the next set of innovation by delivering the services under a ���utility��� model,��� he added. Shares of Infosys closed down by 1.49% at Rs 2,178.35 on the Bombay Stock Exchange (BSE) on Friday.

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Figures please...

Second quarter profit stood at Rs 1,540 crore. Revenues grew 2.1% sequentially and net earnings 0.9%. New revenue guidance for the full fiscal is in the range of Rs 21,961-22 ,055 crore against Rs 21,416-21 ,747 crore provided at the end of the first quarter.

New clients, business models...

Infosys added 35 new clients during second quarter taking the total number to 571. Customers such as Royal Philips Electronics continue to do more work based on utility-based pricing models wherein Infosys is paid based on the number of transactions.

What about hiring?

Infosys said it will hire around 20,000 new professionals this year, up from the 18,000 projected earlier. It hired 1,548 employees in the second quarter.

Looking forward, what do experts say?

Edelweiss analysts Viju George, Kunal Sangoi and Pratik Gandhi: Infosys��� leadership and its must-own-stock status in the sector will be increasingly distributed towards the others (TCS and Wipro)