Infosys surprises market with 17.3% increase in net profit

Cuts full-year guidance on top line

Infosys Technologies, India’s second largest software exporter, today beat market expectations to post a 17.3 per cent rise in first quarter net profit to Rs 1,527 crore, but cut its full-year guidance in rupee terms, reflecting the impact of sharp gains by the local currency against the dollar.

The company told the Street that it would see a 1.3 per cent year-on-year drop in top line for the current financial year in rupee terms. For the second quarter (July-October 2009), too, it said it could see a 2 per cent drop in top line.
 

MIXED BAG
	Income	PAT
Q1 FY09 (Rs cr)	4854	1302
Q1 FY10 (Rs cr)	5472	1527
YoY Growth (%)	12.7	17.3
Q4 FY09 (Rs cr)	5635	1613
QoQ (%)	-2.9	-5.3

In dollar terms, for the second quarter, the company expects its consolidated revenues to fall by 8.7 to 7.1 per cent. For the full year, the year-on-year decline in revenue could be 4.6 to 3.1 per cent. “We believe that in the short term, the global economic environment will continue to be challenging,” said S Gopalakrishnan, CEO and managing director.

The guidance left analysts squirming. “While the numbers are good, the guidance is not comforting. The core business is still under stress and we are cautious. The other concern is taxation, which has gone up dramatically,” said Harit Shah, research analyst at Angel Broking. The company's effective tax rate rose from 17 per cent to 20 per cent.

Nevertheless, the Infosys stock rose nearly 3 per cent to close at Rs 1,726.50 on the Bombay Stock Exchange today. The reason, according to analysts, is that Infosys generally provides a conservative guidance.

Moreover, the guidance was low primarily due to currency movements — in the first quarter, the rupee appreciated against the dollar by nearly 3 per cent. Riding on Infosys, information technology stocks today were the only gainers in a falling market.

The company’s total income in the first quarter (April-June 2009) increased by 12.7 per cent to Rs 5,741 crore as compared to the corresponding quarter last year. Sequentially (quarter-on-quarter), Infosys posted a 3 per cent drop in revenue and a 5.3 per cent decline in net profit.

The company’s consolidated revenues in dollar terms stood at $1,122 million, a 2.9 per cent decline, while its net income was $313 million for the same period — 1.6 per cent growth.

The management, meanwhile, admitted that volume growth fell 1.1 per cent in the first quarter and pricing continued to face pressures. IT analysts have been predicting a 6-11 per cent decline in global IT spends and clients are tightening their purses in discretionary spending. This showed up in the 0.1 per cent revenue decline from the consulting and packaging segment.

Revenue from the banking, financial services and insurance (BFSI) sector, which accounts for 33 per cent of Infosys’ revenue, was flat for the quarter under review. The manufacturing, retail segments saw a marginal decrease in revenue, while the telecom sector witnessed a small increase.

Revenue from its main markets — North America (64.7 per cent) and Europe (24.7 per cent) — was almost flat. The contribution to the total revenue of Infosys by its top client – BT — fell by 1.2 percentage points, while the contribution from the top five clients fell by almost a percentage point.