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Brokerages see Infy net up 7% sequentially

Crisil MarketWire in Mumbai | January 10, 2005 12:04 IST

Infosys Technologies is expected to report a net profit of Rs 479 crore (Rs 4.79 billion) for October-December, according to the average of the estimates of 8 brokerages polled by Crisil MarketWire.

Net profit is seen rising 46 per cent on year and around 7 per cent on a sequential basis.

The software bellwether is expected to report net sales of Rs 1,897 crore (Rs 18.97 billion) for the quarter, up 53.5 per cent on-year, and around 8 per cent higher on a sequential basis.

Infosys will detail its October-December earnings on Wednesday. Net profit estimates vary between a low of Rs 472 crore (Rs 4.72 billion) and a high of Rs 487 crore (Rs 4.87 billion). Sales estimates vary between a high of Rs 1,910 crore (Rs 19.10 billion) and a low of Rs 1,870 crore (Rs 18.7 billion).

Infosys has guided for revenues between Rs 1,869-1,888 crore (Rs 18.69-Rs 18.88 billion) for the quarter, and a net profit of Rs 457.8 crore (Rs 4.58 billion). Normally, consensus estimates for Infosys Technologies are well above company guidance.

This time, though the estimates are higher than the guidance, analysts do not seem to be expecting a major surprise from India's number two software company.

Many software analysts have recently lowered their ratings on the sector, following the steep appreciation in the rupee vis-a-vis the dollar during the quarter.

As software firms earn their revenues in dollars due to the export- oriented nature of the business, a stronger rupee means less revenue for these companies.

The rupee has risen over 2.5 per cent during the quarter on a sequential basis. According to investment bank CLSA Securities, a 1 per cent appreciation in the rupee hits operating profits by 30-35 basis points.

On the positive side, most software companies have seen a healthy rise in volume of business, and an improvement in realisations.

While outlook on the sector has turned cautious, Infosys Technologies continues to be the preferred stock in the sector for most brokerages.

"Infosys Technologies should be able to achieve the maximum sequential growth among the large market cap Indian software companies," said a result preview note by ICICI Securities, which has a buy call on the stock.

"We estimate billing rates to remain stable and revenue growth to be driven by increase in billed man-months.

"We believe, this quarter will clearly show the leadership position of Infosys among all Indian software companies," the note said.

CLSA is underweight on the software sector, but is bullish on Infosys. "Infosys has consistently shown an ability to manage topline growth and cost structures in a predictable fashion," said the CLSA note.

"We believe its performance gap, as well as the consistency gap, vis-a-vis peers, will only expand in 2005," the note said.

As has always been the case, the market will be closely watching the company's guidance for the remainder of the current fiscal.

Market expectations are tempered this time as the industry as a whole has been grappling with the twin issues of rising rupee and growing staff costs.

In addition, the company has already cautioned that it may not be able to sustain its profit margins or levels of profitability, in its latest filing with the US Securities and Exchange Commission.

But given Infosys' track record, dealers are hopeful that the company may spring a pleasant surprise this time also, by announcing healthy growth targets for January-March.

Reflecting the cautious outlook on the sector, Infosys shares have been trading in a narrow band over the last one month, under-performing key indices.

Since the beginning of December, Infosys shares are down close to 5 per cent . Among frontline shares, Satyam Computer Services and Wipro fell 9 per cent and 13 per cent, respectively, during the same period, while Tata Consultancy Services rose around 5 per cent.

The 52-week high for Infosys on the Bombay Stock Exchange is Rs 2,167, while the low is Rs 1,031.

The stock Friday closed on the BSE at Rs 2,050.80, up a tad over Thursday.

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