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Infosys shares plunge on poor sales

Reported by AAP
Friday, April 13, 2012
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Infosys Technologies has reported quarterly profit of $US463 million ($A445.04 million) and says its revenue will grow more slowly than the industry's this fiscal year, eroding its position as India's outsourcing bellwether.

Infosys shares plunged as much as 11 per cent in Mumbai on Friday.

Net income for the quarter ended March grew 15.2 per cent in dollar terms from a year earlier to $US463 million ($A445.04 million). Sales grew 10.5 per cent, to $US1.8 billion ($A1.73 billion), in line with analyst expectations but lower than the company's earlier guidance.

A survey of analysts by FactSet predicted quarterly sales of $US1.8 billion ($A1.73 billion) and net income of $US443.7 million ($A426.49 million).

Infosys said revenue for the fiscal year ending March 2013 would grow 8 to 10 per cent, to between $US7.6 billion ($A7.31 billion) and $US7.7 billion ($A7.40 billion) - less than industry body Nasscom's forecast of 11 per cent to 14 per cent export revenue growth for the industry. Ninety-eight per cent of Infosys' revenues come from outside India.

The guidance unnerved investors worried about the impact of global uncertainty on India's outsourcing sector, dragging shares of competitors Tata Consultancy Services down 3.9 per cent and Wipro down 2.9 per cent in otherwise flat morning trade.

"It has been a pretty challenging quarter for us," chief executive S D Shibulal told India's CNBC-TV18. "We have seen contract delays, delays in some anticipated ramp-ups we'd planned and ramp-downs in quite a few accounts, particularly in financial services and the US."

He and other executives struck an ominous mantra, repeating that the company is facing a "new normal" of global uncertainty and volatility.

He said client confidence dipped sharply in the last month, triggering a low growth phase which the company expects to continue this quarter. Infosys said revenues would grow by 0 to 1 per cent in dollar terms this quarter over last quarter.

Despite the difficulties, Infosys has seen pricing increase 4.7 per cent for the year ending March 2012 over the prior year, a vindication, executives said, of their strategy to chase high-margin business.

Infosys said it expects operating margins to decrease by two percentage points this quarter, largely because of fees for US visas and the cost of hiring in the US, both of which will likely be bunched in the June quarter.

Infosys has hired 1,200 locals in the US in each of the last two years and said it expects to hire another 1,200 Americans - out of 35,000 global hires - this fiscal year.

Infosys sends a large number of Indian employees to the US on H1B and L1 visas to work with clients on site. The US raised the cost of those visas in 2010 in a way that Indian outsourcing companies said targeted them.

The fees, which are used to pay for heightened security on the US-Mexico border, are now the subject of a brewing trade dispute between India and the US at the World Trade Organisation.

At the time the new fees were implemented, New Delhi said they would cost Indian companies over $US200 million ($A192.24 million) a year.

Infosys gets over 62 per cent of its revenue from North America. A quarter of its manpower is deployed with clients on site.

Infosys said it is not planning to raise salaries right now, but will revisit that decision midyear. It expects pricing to be stable in the year ahead.

Infosys' focus on high-margin business may be eroding earnings in the short term, said Kotak Securities analyst Dipen Shah.

"Guidance has been greatly disappointing. They are focusing only on high quality growth. It seems they are letting go of some business which is not available at the level of margins they expect," he said. "That is what has likely impacted them."

Earnings for the March quarter grew 1.1 per cent from the prior quarter in dollar terms, despite a 1.9 per cent quarterly decline in sales thanks to an unusually large $US17 million ($A16.34 million) cut in administrative expenses.

30/08/2014 22:15Sydney, Australia. 30 August,2014
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