Infosys profit rises 24 pct, guidance disappoints

Infosys, India's second-ranked software services provider, reported a 24 percent gain in quarterly profit, as European firms come under pressure to shift more backroom functions offshore to keep their costs in check.

The information technology bellwether caught analysts on the hop in July when it cut its annual sales forecast more deeply than expected - as global economic uncertainty hit tech spending - but its shares have risen by a fifth since its lows that month, beating gains of 13 percent on the benchmark Sensex and nearly 9 percent by market leader Tata Consultancy Services.

Profit at Infosys, whose clients include Bank of America , Volkswagen and GlaxoSmithkline, rose to 23.7 billion rupees for the quarter that ended September, from 19.06 billion rupees a year earlier.

July-September net profit was forecast at 23.8 billion rupees, according to Thomson Reuters data. Profit in the previous quarter grew 33 percent from a year earlier.

The recent stock rally has come as investors see some signs of stability for the global economy and hope for an uptick in demand, though the International Monetary Fund this week warned that the United States and Europe could slide back unless they resolved their debt troubles.

IMF head Christine Lagarde has blamed Europe and the U.S. - the mainstays of India's $100 billion software and services outsourcing industry - for companies putting off investment and hiring.

MAINTAINS REVENUE FORECAST

The company said it expects revenue growth of at least 5 percent for the fiscal year, maintaining its previous outlook. Infosys cut its view for earnings per American Depository Share to at least $2.97 from $3.03, adjusting it for the currency exchange rate.

Analysts had predicted Infosys, which has a market value of around $26 billion, will revise its revenue growth estimate to around 6 percent for the year to end-March, boosted by its acquisition last month of Swiss consultancy Lodestone. In July, the company cut that forecast to 5 percent from its April estimate for 8-10 percent growth. Excluding Lodestone, Infosys' legacy business is expected to grow slightly less than that 5 percent estimate.

Infosys agreed to pay about $350 million - its biggest buy to date - for Lodestone, a specialist in advising companies such as BMW AG and Roche Holding AG on how best to use SAP AG's business management software.

"They want to be the Accenture of India's IT industry," said P. Phani Sekhar, a fund manager at Angel Broking in Mumbai, which owns Infosys stock. He was referring to the U.S. consulting and outsourcing group that is a major global rival.

For now, though, Infosys has to compete for orders in the more commoditised sectors of maintaining computer systems, software applications and helpdesk support. Rivals TCS and HCL Technologies have aggressively chased such contracts.

TCS is due to report its July-September results on October 19.

Infosys, which has seen a slew of management changes in the last couple of years, said its chief financial officer V. Balakrishnan would give up his position from October 31 and will be replaced by vice president finance Rajiv Bansal.

Balakrishnan will, however, continue to be on the company's board.

Partha Iyengar, Gartner's top analyst in India said this week there were strong indications that software services providers would outperform the industry estimate this year. The National Association of Software and Service Companies (NASSCOM) has estimated exports will rise 11-14 percent in the year to March - down from 16 percent last year and about 30 percent before the global financial crisis.

"I'm leaning towards ... we're actually going to outperform the NASSCOM estimates in terms of IT services growth," Iyengar told reporters by phone from a symposium in Goa, southwest India.

Iyengar said there was a clear drive to reduce the cost of IT, the traditional cost of running a business. "That's the sweet spot the Indian players have played in for a long time," he said.