Soaring profits, sagging stock

Ranjit Gangadharan

MUMBAI: Two of India's leading software services companies on Tuesday

unveiled more than 100 per cent jumps in first half net profits, unaffected by

indications of a slowdown in global technology spending.

The earnings were driven by buoyant e-commerce revenues and a stronger

dollar, which boosted their income in rupee terms.

"Overall, it implies that the strength of the software business for

Indian companies continues and the momentum is strong," said Motilal Oswal

Securities analyst Mahesh Vaze.

Infosys Technologies Ltd., the first Indian firm to list on the US Nasdaq,

posted a 122.3 per cent jump in net profit to Rs 2.81 billion ($60.9 million) in

the six months ended September 30 from Rs 1.26 billion a year ago.

Total income jumped to Rs 8.36 billion from Rs 4.02 billion.

Net profit of Satyam Computer Services Ltd., India's fourth largest exporter

of software services, leapt 107 per cent in the first half to Rs 1.17 billion

from Rs 565.85 million.

Total income grew to Rs 5.25 billion from Rs 2.94 billion.

The firms earn more than 90 per cent of their income from exports. The rupee

weakened by 5.3 per cent to the dollar in the six months to September 30,

including a 3.0 per cent depreciation in the July-September quarter, compared to

March 31.

Shares slide



The results beat market expectations but the companies’ shares found little
support from investors as negative global sentiment to the tech sector weighed

on the market.

Infosys, which has the heaviest weighting in the benchmark Bombay index .BSESN),

closed 1.5 per cent down at Rs 7,288.7, off early gains of 1.1 per cent when the

results were posted. The Bombay index also shed early gains to finish 2.7 per

cent lower.

"The results are sexy but this is not the best of times," a dealer

at one foreign brokerage said. "Everyone's over-exposed to the software

sector. We need new funds."

Satyam shares closed 4.2 per cent down at Rs 468.70, before the results were

released.

"Weak trading sentiment is unlikely to help Satyam shares," said

Advani Share Brokers director Pashupati Advani.

Infosys managing director Nandan Nilekani saw no prospect of his firm being

hit by warnings from global tech firms such as Intel Corp and Dell Computer

Corp.

"We have a diverse basket of customers and long-term relationships with

our clients with a very high level of repeat business," he told analysts

over television network, CNBC India.

"We get involved with the budget plans of our customers, we understand

their sales cycles...all that is factored into our plans," he said.

The company makes software for large global corporations to enable them to do

business on the Internet, by utilizing India's vast pool of skilled manpower to

produce products at competitive rates.

E-commerce revenues rose to 31.4 per cent of total revenues during the second

quarter from 10.3 per cent in the year-ago period.

Earnings upgrade



"The results are pretty impressive with average per employee revenue up 12
per cent in dollar terms over the preceding quarter," said SG Asia

Securities analyst Yeshwant Kini.

"We continue to be positive on the stock. We maintain our buy," he

said.

Kini said he was likely to upgrade his earnings forecast for the full year

after the first half results beat expectations, and because the outlook was

bright.

Software analyst at Sundaram Newton Asset Management in Chennai, Srividya

Rajesh, was also upgrading estimates.

"We are raising our estimates for the full year and we can now expect a

125 per cent year-on-year growth in bottomline and over 100 per cent in topline,"

she said.

Satyam Computer, which owns about 55 per cent of the Nasdaq-listed Internet

firm Satyam Infoway, sees good business potential from electronic commerce

products.

Internet and e-commerce contributed to 27.1 per cent of total revenues for

the second quarter against 15.4 per cent in the year-ago quarter.

"As companies continue to enlarge the scope of applications involving

the Internet and the Web to cover more areas of their operations, the definition

of what comprises e-commerce is undergoing change," managing director B

Rama Raju told Reuters.

Satyam added 35 new clients in the second quarter, including US Internet

healthcare firm Healtheon/WebMD Corp, Citibank Singapore and Denso.

The company, which last week got government approval to issue up to $310

million of American Depositary Shares, is expected to announce details of the

issue shortly. ($=46.18 Indian Rupees).

(C) Reuters Limited 2000.