Infosys Earnings Forecast Misses Analyst Estimates, Sending Shares Lower

Infosys Ltd. forecast sales that missed analysts’ estimates, pulling shares of rival Indian software exporters lower amid concerns customers are holding off on new contracts because of uncertainties in the global economy.

India’s second-largest code writer projected sales in the year to March to range from $7.1 billion to $7.3 billion, Bangalore-based Infosys said today, missing the $7.5 billion average of 56 analyst estimates compiled by Bloomberg. The company raised its earnings per American depositary receipt.

Infosys fell the most in almost three months in Mumbai, leading declines in Tata Consultancy Ltd. and Wipro Ltd. (WPRO) as the forecast contrasts with the raised projections at larger rival Accenture Plc (ACN) last month. The European debt crisis may put pressure on the profits of banks and financial services companies and that’s an “overhang” for the Indian software industry, said an analyst at Centrum Broking Pvt. in Mumbai.

“We are structurally negative on the sector and believe that earnings expectations have to be lowered,” said Centrum’s Girish Pai. “The downgrade cycle for Infosys and the sector as a whole would continue in the current fiscal year and we may see larger cuts in the year starting April.”

Infosys slumped 4.4 percent, the most since April 15, to 2,791.55 rupees at the 3:30 p.m. close in Mumbai. The stock was the worst performer on the Bombay Stock Exchange’s benchmark Sensitive Index, which declined 1.7 percent. Larger rival Tata Consultancy fell 1 percent while Wipro, India’s third-biggest software exporter, dropped 1.5 percent. Both companies are scheduled to report earnings later this month.

Net Income

Infosys forecast sales for the year to range from 317.8 billion rupees ($7.1 billion) to 323.1 billion rupees. The company increased its earnings per ADR estimate to $2.88 to $2.92 from $2.83 to $2.88, according to the statement.

The software exporter also today reported net income increased 16 percent to 17.2 billion rupees in the three months ended in June from 14.9 billion rupees a year earlier. That was in line with the median analyst estimate compiled by Bloomberg.

Infosys, which builds software programs and provides back- office support to clients including BT Group Plc and Citigroup Inc., was founded by billionaire N.R. Narayana Murthy and six colleagues in 1981 with $250 they borrowed from their wives. In 1999, Infosys became the first Indian company to sell American Depositary receipts.

The company in April forecast higher wages will erode profitability as the software exporter grappled with its highest annual rate of employee turnover in at least 13 years.

‘Volatile Environment’

Operating profit margin in the first quarter was 26.1 percent, Chief Financial Officer V. Balakrishnan said at a briefing in Mysore, India. Wage increases crimped margins by 300 basis points, he said. A basis point is 0.01 percentage point.

“The economic environment is still volatile,” Balakrishnan said. “All the markets have the same problems -- high unemployment, low growth, high inflation, huge fiscal deficit. The sovereign risk in Europe is becoming bigger and bigger. Clients are still cautious.”

Chief Executive Officer S. Gopalakrishnan will step down Aug. 21, Infosys said in April. He will be succeeded by S.D. Shibulal, currently chief operating officer. Chairman Murthy will retire the same day and be replaced by Gopalakrishnan and former ICICI Bank Ltd. head K.V. Kamath, who will be co- chairmen.

Shibulal worked with Sun Microsystems between 1991 and 1996, during a five-year sabbatical, before returning to Infosys and establishing its Internet consulting practice. He later went on to head worldwide sales at the company.

To contact the reporters on this story: Ketaki Gokhale in Mumbai kgokhale@bloomberg.net;

To contact the reporter on this story: Shikhar Balwani in Mumbai at sbalwani@bloomberg.net

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