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| Infosys: Difficult days ahead |
| Shobhana Subramanian & Varun Sharma / Mumbai Dec 04, 2008, 00:46 IST |
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It’s now clear that for many of corporate India larger companies, earnings for 2008-09 will barely grow. For some — in sectors such as automobiles — they could fall. The picture gets worse for many in 2009-10 when the economy is expected to grow at only 6- 6.5 per cent.
 While Infosys may scrape through this year, brokerage CLSA believes that the Bangalore-headquartered firm may not be so lucky in 2009-10 and could see its revenues in dollar terms increase by just about 3 per cent.
That could mean a fall in the earnings which, the report says, could set in at the operating profit level itself. Given the financial crisis in the US this is not really surprising; the environment is worsening and pricing could be under pressure. The banking and financial services vertical, to which Indian tech firms have a relatively high exposure, must be the culprit.
The management had also said in early October that the changing leadership at many firms could mean delayed decision-making. However, other verticals such as retail or even manufacturing may also be seeing less spending on technology.
The bad news is that the lower prices are not expected to be compensated by higher volumes before the second half of 2009-10. By lowering the guidance for the earnings per share (EPS) for 2008-09 in dollar terms from $2.32-2.36 to $2.24, implying that earnings would grow by 10 per cent in the current year, Infosys had already tempered expectations.
Revenues, it had indicated, would be in the region of $4.72--4.81 billion, implying that in dollar terms the growth would be around 15 per cent. While the firm was adding new clients, it would now appear these are not bringing in the kind of business that was expected.
The management had also said its hiring plans were on track—it added 10,000 people in the September quarter. The impression one got was that while the environment was challenging, Infosys would be able to grow, albeit at a much slower pace. But now even that appears to be a challenge.
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