Anshuman Daga
BANGALORE: Being a consistent out-performer could weigh heavily on India's
leading blue-chip software services firm - Infosys Technologies Ltd., when it
unveils its annual results on Wednesday. India's second-largest listed software
exporter releases the results against the backdrop of a downturn in its top
market, the United States.
Infosys, India's first company to list on the tech-laced Nasdaq, has
consistently beaten market expectations of earnings growth in the last many
quarters. A Reuter’s poll of 12 brokerages issued on Monday, resulted in an
average net profit forecast rise of 115 per cent to Rs 1.85 billion rupees
($39.7 million) in the January-March fourth quarter over the year. Sales growth
was forecast at 102 per cent to Rs 5.61 billion.
For the full year ending March 31, the firm's net profit is forecast to surge
115 per cent to Rs 6.32 billion, while sales are expected to rise 111 per cent
to Rs 19.49 billion. However, analysts warned of problems in the next few
quarters.
Tech sector’s woes
But analysts warned of possible problems in the next few quarters. A
sustained turmoil in the US tech sector and a likely slowdown in orders
especially from the troubled global telecom firms could put the brakes on
Infosys's dizzying growth rates. "We expect the company to guide mid-single
digit growth rates in revenues over the next two quarters and expectations of a
pick-up thereafter," Salomon Smith Barney said in a report on Tuesday.
North America accounted for about 74 per cent of Infosys' total revenues in
its third quarter ended December. It added 985 staff in the same quarter,
boosting its total number to 8,910. With Infosys' global telecom clients such as
Cisco Systems Inc, Nortel Networks and Lucent Technologies hit hard by a
worsening US economy, the growth of new orders to Infosys remains uncertain or
could even slow down, analysts said.
Telecom companies accounted for about 18 percent of Infosys' revenues in its
third quarter. "We believe the market environment has changed dramatically
over the last six months, and achievable long-term growth rates of Infosys are
unlikely to be in excess of 35-40 percent," JP Morgan Chase said last week
and downgraded the stock to ‘market performer,’ from ‘buy’.
It said the near-term focus on Infosys would be on further evidence of
workflow from large existing clients and signing of new orders. The Bangalore-based
Infosys added 26 new clients in its October-December quarter, taking the total
number of active clients to 250. Its top five clients accounted for about 28 per
cent of its total revenues.
Infosys and other top Indian software service exporters including Wipro Ltd
and Satyam Computer Services, have so far said they would not be hurt by a
slowing US economy. Analysts said cutbacks in US infotech spending had led to
longer sales cycles, order slowdowns and cost pressures on Indian tech
companies, but top-tier firms would be on better footing than second-tier info
tech firms due to cost advantages.
Growth rates slowing
Still, growth rates are likely to slow. "We believe in the argument that
the low cost-high value proposition will ultimately make it attractive to
out-source to Indian companies," the JP Morgan Chase report said.
"However, this is likely to take longer than earlier envisaged," it
added.
Infosys' stock which is currently trading at a 17-month low, has lost 34 per
cent in calendar 2001 compared to a 44 percent drop in Bombay's IT index and has
fallen 62 per cent in the last 12 months.
(C) Reuters Limited 2001.