Robust Infy guidance fuels IT stocks

Last Updated: Tue, Jan 12, 2010 19:40 hrs

India’s second-largest information technology (IT) services provider Infosys Technologies today posted numbers that beat market expectations for the quarter ended December 31, 2009.

Though net profit (consolidated Indian GAAP) at Rs 1,582 crore for the third quarter declined 3.6 per cent compared to the same period last year, the IT company raised its fourth quarter guidance — a year-on-year growth of 0.7-1.5 per cent. All this despite the quarter being a seasonally weak one, which bore the burden of wage hikes.

Sequentially, Infosys’ net grew 2.7 per cent. Revenue at Rs 5,741 crore declined 0.8 per cent year-on-year, but grew 2.8 per cent sequentially. In dollar terms though, the results were better. Revenue at $1,232 million for the third quarter was up 5.2 per cent year-on-year and 6.8 per cent sequentially. Net income at $334 million was up 0.6 per cent year-on-year and 5.4 per cent sequentially.

Riding on the back of a strong 6 per cent volume growth and recovery in the North American markets, Infosys raised its guidance for the full year ending March 31, 2010. In rupee terms, Infosys said its income is expected to be in the range of Rs 5,675 crore and Rs 5,721 crore for the January-March 2010 quarter — a year-on-year growth of 0.7-1.5 per cent. Its earnings per share for the same period is expected to be in the range of Rs 25.62 to Rs 25.83 — a year-on-year decline of 8.3 to 9 per cent.

However, for 2009-10, its income is expected to be between Rs 22,473 crore and Rs 22,519 crore — a year-on-year growth of 3.6-3.8 per cent. For the same period, its EPS is expected to be Rs 106.85-107.06 — a year-on-year growth of 2.2-2.4 per cent.

Infosys Managing Director Kris S Gopalakrishnan said, "Even though IT budgets are expected to be flat in 2010, offshore outsourcing will benefit from this recovery. The worst seems to be over, though there are concerns that the recovery is yet to take full effect." "Traditionally, Q4 is a soft quarter for us because of delay in finalising IT budgets. Since most IT budgets are being finalised by February itself, our guidance is more positive," he added.

The markets reacted positively. On a day when many indices saw red, the IT index was up 3.91 per cent. The Infosys stock closed at Rs 2,587, up 3.9 per cent from the previous close.

The quarter’s performance was exceptional on both volumes and cost management front, according to analysts at Religare. Though growth was led by BFSI, key verticals like telecom and manufacturing, too, witnessed a strong sequential revival of 6.7 per cent each. Pricing, even in constant currency terms, improved as the contribution from fixed priced projects remained stable quarter -on-quarter at 38.3 per cent of revenues. Infosys is sitting on a $3.1 billion pile of cash.

Shashi Bhusan, senior research analyst, Prabhudas Lilladher, said,: "We view this guidance as conservative and expect the growth momentum to continue at an accelerated pace. The management remains optimistic about improved demand environment and said that discussions for the large deals are back to the table."

Dipen Shah, senior vice president, PCG (Private Client Group) Research, Kotak Securities, concurred, "The results soundly beat estimates. A 6.7 per cent constant currency (CC) revenue growth was a positive surprise and so was the sequential improvement in margins."

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