Infosys Ltd., India’s second-largest software exporter, cut its full-year sales forecast in dollar terms for a second time because of weaker economic growth in markets including Europe. The stock slumped.
Sales in the year ending March 31 will range from $7.029 billion to $7.033 billion, Bangalore-based Infosys said today. That compares with the $7.08 billion to $7.2 billion it projected in October.
The shares fell the most in nine months in Mumbai trading after the forecast cut at Infosys, which relies on Europe and North America for more than 80 percent of revenue. Customers haven’t yet finalized their information technology budgets for the year and indications are for flat or reduced spending, Chief Executive Officer S.D. Shibulal told reporters today.
“Clearly, the business environment seems to be quite challenging” for IT-services providers, said Manish Sonthalia, who manages $250 million in equities at Mumbai-based Motilal Oswal Asset Management Co. “That does not give too much confidence from a stock market point of view.”
Infosys declined 8.4 percent to 2,588.25 rupees at the close in Mumbai, the stock’s biggest drop since April 15. The stock was the biggest contributor to the benchmark Sensitive index’s 0.9 percent decline and the second-worst performer on the MSCI Asia Pacific Index.
“The global economy, driven by slower growth in developed markets coupled with the European crisis, could impact the growth of the IT industry,” Shibulal said in a statement.
Faltering global economic growth would likely limit information technology budgets this year, according to Gartner Inc. Worldwide spending on IT services will increase at a slower pace of 3.1 percent to $874 billion this year, after climbing 6.9 percent in 2011, Stamford, Connecticut-based Gartner said Jan. 5.
The euro area is “entering a phase of stagnation, even recession,” European Union President Herman Van Rompuy said yesterday. “We can’t say how long this will last.”
Infosys, which designs software programs, maintains computers and provides IT and outsourcing services for clients including BT Group Plc, said sales in the fourth quarter may range between $1.806 billion and $1.810 billion.
“Customers are very cautious, even if they have a budget, they don’t spend,” Chief Financial Officer V. Balakrishnan said. “We believe that cautiousness will remain for some time. The European recovery is not in sight.”
Infosys, which derived 64 percent of its revenue from North America and 23 percent from Europe last quarter, added 49 clients in the three months for a total of 665 customers.
The company’s continued investment in Europe, including France and Germany, is starting to yield results, Shibulal said. Infosys won five “large” orders in the quarter, including two $500 million contracts from the region, he said.
Third-quarter earnings beat analysts’ estimates as the rupee’s decline boosted the value of repatriated earnings.
Net income rose 33 percent to 23.7 billion rupees ($458 million) in the three months ended Dec. 31, surpassing the 22.8 billion-rupee median of 44 analyst estimates compiled by Bloomberg. Revenue rose 31 percent to 93 billion rupees, exceeding the 91.7 billion-rupee median of 48 estimates.
“They beat some estimates because of forex, not because of improvements in their core business,” said Pralay Kumar Das, an analyst at Elara Securities Ltd. in Mumbai. “What the market looks at though is the future.”
Rupee Sales Outlook
The company raised its outlook for sales in rupee terms. Full-year revenue will range from 342.7 billion rupees to 342.9 billion rupees, higher than the October projection of 335 billion rupees to 340.9 billion rupees.
The rupee’s 7.7 percent decline against the dollar in the three months ended Dec. 31 would have boosted margins at India’s software exporters, said Pratik Gandhi, an analyst at IDBI Capital Markets Services Ltd. in Mumbai.
Shares of other Indian software exporters also fell. Tata Consultancy Services Ltd., the market leader, dropped 4.2 percent to 1,089.50 rupees, and Wipro Ltd. lost 2.5 percent.
“There are delays in decision making,” Shibulal said. “Larger deals are being scrutinized more. Nice-to-have is put on hold. It has marginally worsened since November.”