India’s No.2 software services providerInfosys Ltd (INFY.NS) raised its revenue forecast after posting stronger-than-expected quarterly profit, triggering a near 17 percent surge in its shares.
Many investors had dumped shares in the company after a string of disappointing quarters eroded Infosys’ reputation as the sector bellwether, putting pressure on CEO S.D. Shibulal to win more deals and make the firm more profitable.
“We continue to gain confidence from a strong pipeline of large deals,” Shibulal said in a statement on Friday. “We remain cautiously optimistic about the January-March quarter.”
The Bangalore-based company unexpectedly raised its sales forecast for the year ending March 31 to at least $7.45 billion, including $104 million in additional revenue following its acquisition of Switzerland-based consultancy Lodestone Holdings.
That would be a rise of 6.6 percent from a year earlier, compared with a previous forecast for a 5 percent increase.
New deals, including 13 in Europe, helped boost Infosys’ revenue. Spending on IT services by capital markets clients such as investment banks and brokerages has also improved, Ashok Vemury, head of Americas and manufacturing, told reporters in Bangalore after the earnings announcement.
Clients that have signed big contracts with Infosys, including Harley-Davidson Inc (HOG.N), also accelerated spending during the quarter, he said.
However, some analysts said it was still too early to predict a recovery for the company.
“We are positively surprised by Infosys’ performance, and need to study the durability of Infosys’ comeback,” JPMorgan said in a research note.
Infosys, for years an investor favourite for exceeding its targets, stopped providing quarterly guidance in July. It now provides only an annual revenue forecast.
Analysts had expected Infosys to trim its annual sales growth to as low as 3.3 percent after the company warned last month that U.S. clients had cut back on projects and delayed signing big deals.
“The market was slightly predatory, given that the last two times the company has disappointed, but this time the organic guidance is better … which I think will be taken positively,” said Rikesh Parikh, vice president for markets strategy and equities at Motilal Oswal Securities in Mumbai.
PROFIT BEATS ESTIMATES
Infosys, whose customers include Bank of America Corp (BAC.N) and BT Group Plc (BT.L), said profit for the three months ended December 31 was 23.69 billion rupees versus 23.7 billion rupees a year earlier. That compares with the average estimate of 21 billion rupees in a poll of 16 analysts, according to Thomson Reuters I/B/E/S.
In October-December, Infosys said revenue rose 12 percent to 104.24 billion rupees from 93 billion a year earlier. That compares with analyst estimates of 96.8 billion rupees. The firm added 53 clients during the quarter, the strongest pace of additions in at least five years.
With about 60 percent of its business in the United States, Infosys is vulnerable to swings in U.S. corporate sentiment and has been hit hard by project deferrals. The company is also particularly exposed to discretionary spending in the financial sector. Its premium pricing has also put off some customers.
Shares in Infosys ended with gains of nearly 17 percent at 2712.10 rupees, posting their biggest ever percentage gain on NSE. The BSE IT index rose 9.34 percent.
In 2012, shares in Infosys slumped 16.2 percent, underperforming those of larger rival Tata Consultancy Services Ltd (TCS.NS), which rose 8.2 percent.
Tata Consultancy is expected to report a profit gain of about 12 percent in the quarter, according to Thomson Reuters data. India’s top software exporter, part of the $100 billion Tata Group, will report its earnings on Monday.
Wipro Ltd (WIPR.NS), the country’s No.3 software services provider, may report a quarterly profit gain of 6.7 percent, analysts said. The company, which is restructuring its non-information technology businesses and focusing exclusively on IT, will announce its earnings on January 18.
Fourth-ranked HCL Technologies Ltd (HCLT.NS) is expected to report a 43.8 percent jump in quarterly profit on January 17.
India’s $100 billion-a-year IT and back-office outsourcing sector earns about three-quarters of its revenues from customers in the United States and Europe, and faces intense competition from global rivals including IBM (IBM.N), Accenture (ACN.N) and Cap Gemini (CAPP.PA).
JAGANNADHAM THUNUGUNTLA, STRATEGIST, SMC GLOBAL SECURITIES, NEW DELHI
“Investors’ expectations from Infosys were so low that even a slight uptick in the forecast will be cheered by the market, and that is helping their cause. The language of the guidance is also slightly better this time with the company saying they have a strong pipeline. This is something we are hearing after a long time.
“One cannot, however, make a firm opinion about the recovery with one set of data point and I think it will take couple of quarters to see whether the company is really on the path of recovery now.”
RIKESH PARIKH, VICE-PRESIDENT, MARKETS STRATEGY AND EQUITIES, MOTILAL OSWAL SECURITIES, MUMBAI
“The numbers look better than estimated.
“The market was slightly predatory, given that the last two times the company has disappointed, but this time the organic guidance is better… which I think will be taken positively.
“A good start to the season.”
SURESH PARMAR, ASSOCIATE VICE PRESIDENT AND HEAD OF INSTITUTIONAL EQUITIES, KJMC CAPITAL MARKETS, MUMBAI
“Infosys could provide better results in a relatively bad environment. The stock was beaten down in the past and the downside is limited. We advise clients to buy the stock for long-term.”
PARAS ADENWALA, MD & PRINCIPAL PORTFOLIO MANAGER, CAPITAL PORTFOLIO ADVISORS, MUMBAI
“Some short covering can be expected. One will see improvement in Infosys in particular and for IT sector in general. My sense is that de-rating would stop in a while as bottom has been formed.”