India Looks To Infosys To Salvage Reputation

The Indian IT industry is going through turbulent times with Satyam’s (the fourth-largest player in the country) CEO reporting a $1 billion fraud. The results announced by the largest player, Infosys Technologies (INFY), did manage to bring some respite to the market. Narayan Murthy must be ashamed of his compatriot, Ramalinga Raju for jeopardizing India’s reputation.

For the quarter, Infosys’ revenues grew by 8% to $1.17 billion and met analysts’ expectations while EPS of $0.58 beat the Street’s expectations of $0.55. By segment, they saw BFSI grow  by 4.1%, retail by 2.9% and other segments grow by 4.3% in constant currency. However, manufacturing and telecom declined by 3.7% and 3.4% in constant currency.

In view of economic concerns, they revised their outlook further downwards to growth expectations in the range of 12%-13% from 13%-15% expected earlier. The company blamed this reduction on the strengthening dollar with reference to European currencies.

They expect profit in the range of $0.55 for Q4 with revenues of $1.13-$1.17 billion. For the full year, they forecast profits to rise to $2.23 with revenues in the range of $4.67-$4.71 billion. The Street was looking for Q4 revenues of $1.18 billion with fiscal revenue projections of $4.73 billion.

In the previous quarter, Infosys was looking to move out of body shopping through the acquisition of Axon. However, with the deal having fallen through in favor of its competitor HCL Technologies, it is now searching for other potential acquisitions, making me wonder again about their Wave 3 strategy.

The company was worried about growing pricing pressures as they saw their prices slide by 2% in constant currency. These price pressures are illustrations to my oft-stated point that the Indian outsourcing industry can not simply compete on labor arbitrage, as the price differentials will soon vanish.

The stock meanwhile rose by 6% on the announcement of the results to $27.40 and is currently trading at $26.44.