BANGALORE — Infosys Technologies Ltd. marginally raised its full year forecasts after beating estimates with a 17 per cent rise in quarterly profit, helped by currency gains but warned of a challenging global environment.
India's second-biggest software services exporter, said staff strength fell in the last quarter for the first time and it expects contract prices to drop further due to pressure from battered clients.
Its rivals Tata Consultancy Services and Wipro also face competition from big players such as IBM, Accenture and Hewlett-Packard who have raided their home-turf and are winning contracts.
“The broad numbers are better than estimates,” said Apurva Shah, head of research at broking firm Prabhudas Lilladher in Mumbai. “The guidance is more a signalling tool indicating the degree of pessimism or gloom has come down. But it is not yet back to normal to lift the overall forecast.”
The business environment was turbulent and punctuated by long decision making cycles and a recovery in technology spending was likely only by mid-2010, Infosys' chief operating officer S.D. Shibulal said. He expects prices to fall by 5 per cent in the year ending March 2010.
Kicking off the sector's results, Infosys forecast consolidated revenue will fall 3.1-4.6 per cent to $4.45-billion to $4.52-billion (U.S.) in the full year.
The company, which counts Goldman Sachs, Philips Electronics, BT Group Plc among its clients, expects earnings per share to decline 11.1-12.4 per cent in dollar terms. That compares with its April forecast of earnings to fall 11.1-15.1 per cent and revenue to decline 3.1-6.7 per cent.
Nasdaq-listed Infosys, which started in 1981 with $250 borrowed from spouses of its seven founders, said its staff strength fell by 945 in the last quarter to 103,905.
It was the first drop for the company that had been hiring employees by the thousands each quarter to keep pace with rising contracts from clients keen to cut costs.
“I think it is a blip,” said Ashok Reddy, managing director of staffing firm TeamLease. “There has been employee rationalisation to combat the slowdown in the IT sector. But in the last month and a half recruitment demand has revived.”
Many clients of India's outsourcing sector, which had so far chalked up impressive rates of growth, are struggling to stay afloat, have gone bankrupt, or are tackling severe cost cuts, leaving them little room to boost technology spending.
Infosys added 27 clients in April-June, lower than 37 in January-March and from 49 a year ago. The total tally of clients fell to 569 from 579 in Jan-March.
“We believe that it is too early to say the (global) economy is better. There are conflicting signals,” CEO Kris Gopalakrishnan said.
Infosys stunned markets in April when it forecast its first decline in annual revenue in dollar terms, marking a watershed for a sector that is a magnet for thousands of young job-seekers in the country.
Powered by an army of low-cost, English-speaking workers, India's outsourcing sector provides services ranging from managing complex computer networks and call centres to software coding to maintaining technology operations.
Infosys, known for its conservative outlook, said it will review its forecast if business conditions improve.
“It's more to do with cautiousness because we are not seeing any big improvement at the micro level even though there are some green shoots at the macro level,” Infosys CFO V. Balakrishnan told analysts.
Last month, technology outsourcing and consulting firm Accenture raised its full-year outlook, saying some customers were beginning to make investment decisions after a long freeze in such plans.
Analysts said reduced pace of deal cancellations and signs of stability in the key financial sector was positive, but the sector's growth rate was unlikely to pick up.
“Still there are concerns and their (Infosys) guidance shows they are not very optimistic about business recovery in the IT sector. Let's wait for a quarter or two,” said K.K Mital, head of portfolio management services at Globe Capital in New Delhi.
Infosys, which develops applications, supply chains and runs back-office services, said net profit rose to 15.27-billion rupees ($314-million) in April-June, its fiscal first quarter, from 13.02-billion a year ago.
A Reuters poll had estimated a net profit of 13.97 billion rupees.
Infosys said April-June margins rose 0.7 per cent from Jan-March as the negative impact of the rupee's 5.9 per cent rise versus the dollar was countered by favourable movement of the euro and pound. This led the company to delay investment in overseas hiring and sales.
Infosys earns more than a quarter of its revenue in currencies other than the dollar.
Shares in Infosys, valued at more than $20-billion, climbed 34 per cent in April-June versus a 44 per cent rise in the sector index and a 49 per cent jump in the main index.
By 0900 GMT, the shares were up 4.5 per cent, on course to rack up their sharpest daily gain in nearly two months Infosys and its key rivals are expanding in Europe, Latin America and Asia Pacific to cut their dependence on the United States, which accounts for more than half the sector's revenue.
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