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Infosys' refocus on big-ticket contracts starts to pay off

October 11, 2013 21:27 IST

Infosys' refocus on big-ticket contracts starts to pay off

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Infosys Ltd's refocus on big-ticket contracts since the return of its founder has begun to pay off as India's No. 2 software services exporter crossed $2 billion in quarterly sales for the first time and pushed up its revenue outlook.

Still, a one-off provision left Infosys reporting profit that missed analyst estimates in its first full-quarter earnings since Narayana Murthy came out of retirement, during which time the industry bellwether lost ground to rivals such as Tata Consultancy Services .

Infosys shares, which are often highly volatile after results statements, on Friday ended up a relatively muted 4.7 percent at 3274.50 rupees after touching their highest since April 2011.

Under Executive Chairman Murthy, Infosys is increasing investment in sales and doing a better job at winning large outsourcing contracts to which it is devoting more senior management attention.

"There's still a lot of work to be done, but they're turning around," said Equirus Securities Chief Executive Bhavin Shah.

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Photographs: Courtesy, Infosys

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"I think they're seeing deal wins, client traction and revenue momentum. I'm sure Murthy is spending a lot of energy in sort of assuring clients that Infosys means business."

Murthy has said Infosys sacrificed growth in favour of higher-margin proprietary software and consulting. Instead, he is refocusing on large, plain-vanilla IT outsourcing contracts that have long been the industry staple.

Infosys pointed to Australia, its third-biggest market, as evidence of recent success, winning all six of the deals it competed for above $75 million in value over the last two quarters.

Globally, Infosys won five large contracts worth a combined $450 million in the September quarter.

"Our focus on proactively creating large deals has led to significantly better pipeline," CEO S.D. Shibulal told analysts.

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Photographs: Courtesy, Infosys

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Visa probe bites

Bangalore-based Infosys recorded consolidated net profit for the three months to Sept. 30 of 24.07 billion rupees ($391 million) compared with 23.69 billion rupees in the same period a year earlier.

The result missed the 26.26 billion rupees average of analyst estimates according to Thomson Reuters, primarily because it set aside 2.19 billion rupees as it seeks a "civil resolution" to an investigation in the United States over the past use of temporary employment visas.

Infosys also said it expects its operating margin to be steady at about 23.5 percent if the rupee is stable.

India's IT services industry, which generates most of its revenue in U.S. dollars, benefits from rupee weakness because companies earn more rupees for every dollar a client spends.

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Photographs: Reuters

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Infosys, one of the few Indian companies to give guidance, narrowed the range of its fiscal year revenue growth outlook to 9-10 percent from 6-10 percent.

Several analysts called that conservative. The National Association of Software and Services Companies forecast for the sector is 12-14 percent.

Ambit Capital analyst Ankur Rudra, who has long had a sell rating on the stock, called the guidance "inexplicably conservative" and "disappointingly low."

"We continue to remain cautious on the pace of the recovery in demand for offshore IT services and expect industry performance to be (led) by faster growing peers," such as TCS, U.S.-based Cognizant Technology Solutions Corp and HCL Technologies Ltd, Rudra wrote in a note.

 


Image: Narayana Murthy.
Photographs: Reuters

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