Infosys Technologies Ltd. (INFO), India’s No. 2 software exporter, fell the most in almost two years in Mumbai after forecasting sales that trailed analysts’ estimates and reporting fourth-quarter profit that missed expectations.
The shares had their biggest decline since May 2009, after the Bangalore, India-based software-services provider said sales in the year that began this month would be in the range of 317.3 billion rupees ($7.16 billion) to 322.7 billion rupees. The average of 52 analysts’ estimates was for 341.5 billion rupees.
Infosys’s profit in the three months ended March missed analysts’ estimate, the third time in four quarters, after clients shortened the length of orders and the rupee appreciated. Growth in contracts for information technology- services in the U.S., the company’s biggest market, could hit a roadblock if legislators pass rules that would make it more expensive to bring skilled workers to the country for work.
“The results are much below expectations,” said Srishti Anand, an analyst at Angel Broking Ltd. “The sales guidance for next quarter is also muted.”
Infosys declined 9.6 percent to 2,989.50 rupees at the 3:30 p.m. close of trading in Mumbai. The stock was the worst performer on the Bombay Stock Exchange’s benchmark 30-company Sensitive Index, dragging it down 1.6 percent. Larger rival Tata Consultancy Services Ltd. (TCS), which will report earnings on April 21, fell 1.6 percent, while third-ranked Wipro Ltd. (WPRO) slid 4.8 percent.
Futures traders boosted bearish bets on Infosys. Open interest, or the number of contracts that haven’t been closed, jumped 46 percent to 41,294, data compiled by Bloomberg show. Its April futures were at 3,015 rupees.
The company’s directors will meet on April 30 to decide on a management succession plan, Infosys said. T.V. Mohandas Pai, director and head of human resources development, will leave the company by June 11. K. Dinesh, a co-founder, will retire.
Increasing competition with Tata Consultancy Services and other companies is also lifting the churn rate. Attrition in the fourth quarter was 17 percent compared with 13.4 percent a year earlier, Infosys said.
Net income rose to 18.2 billion rupees in the three months ended March 31 from 16 billion rupees a year earlier. That compared with the 18.9 billion-rupee average of 27 analysts’ estimates compiled by Bloomberg.
Sales grew less than estimated after clients cut the tenure of contracts and the rupee gained against foreign currencies, slashing the repatriated value of Infosys’s overseas earnings.
“Growth may be sluggish,” said Girish Pai, an analyst at Centrum Broking Pvt. in Mumbai, who has a “hold” rating on the stock. “Some of the growth the companies saw over the last year has been driven by pent-up demand and some extra demand coming from mergers and acquisitions-related integration work. That, I think, is kind of petering off.”
Fourth-quarter sales were 72.5 billion rupees, compared with 59.4 billion rupees a year earlier. That missed the 74.6 billion-rupee average of analysts’ estimates.
Infosys also forecast higher wages will erode profitability as the company grapples with its highest annual rate of employee attrition in at least 13 years. The operating profit margin will probably drop by 2.9 percentage points this fiscal year after it declined to 29.5 percent last year, Chief Operating Officer S. Dinesh Shibulal said.
That would result in the company’s lowest annual margin since at least 2003, according to data compiled by Bloomberg.
Infosys, which added a net 3,041 employees in the fourth quarter, said the operating margin in the fourth quarter was 29 percent, compared with 30 percent in the third quarter. Salaries are expected to rise by between 10 percent and 12 percent this fiscal year, while for workers outside of India, the increases may be about 1 percent to 2 percent, Shibulal said.
“Utilization actually came down,” Shibulal said of using the company’s workers. “That is why the impact on margins happened.”
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