Infosys Extends Biggest Slide in a Decade in U.S. Trading

Infosys Ltd. plunged the most since 2003 in New York, following a 21 percent slide in Mumbai, after India’s second-largest software services exporter forecast annual sales growth will slow to as little as half the pace estimated by analysts.

American depositary receipts of Infosys sank 21 percent to $43.10 at the close in New York, the steepest decline since April 2003. Shares tumbled to 2,296.65 rupees in Indian trading, also the largest drop in a decade and the biggest slump on Mumbai’s S&P BSE India Index.

The company, based in Bangalore, said that it expects revenue to rise 6 percent to 10 percent in the year ending March 2014. The average of 66 analysts’ estimates was for a 12.7 percent increase in sales for the period, data compiled by Bloomberg show. The uneven global recovery poses a challenge for the information-technology services industry, Chief Executive Officer S.D. Shibulal said after the European Central Bank cut growth and inflation forecasts last month.

“It is a real disaster for Infosys, primarily because of their low guidance along with their fourth-quarter revenue,” said Amar Mourya, a Mumbai-based analyst at India Nivesh Ltd., which has rated Infosys a buy since March. “Their confidence seems to be shaken with such a broad forecast, and visibility looks poor.”

Bigger competitor Tata Consultancy Services Ltd., which is scheduled to report earnings April 17, fell 1.6 percent in Mumbai and Wipro Ltd. dropped 4.8 percent. ADRs of Wipro, India’s third-largest software-services provider, slipped 4.6 percent in New York, set for the biggest one-day drop since Jan. 18. While the S&P BSE Sensex fell 1.6 percent, the Bank of New York Mellon Corp. index of Indian company ADRs rose less than 0.1 percent in U.S. trading.

‘Substantial’ Unknowns

Infosys didn’t provide an earnings per share forecast as the “unknowns are substantial,” CEO Shibulal said on a conference call with analysts. The company said that it charged customers less last quarter, underscoring concerns that service providers won’t be able to raise prices.

The spending budgets of customers in financial services, which contributed 27 percent of Infosys’ revenue, will drop, the company said last month.

“From an environment perspective it is mixed, it is challenging,” Shibulal said in Bangalore today. “Clients are completely focused on cost, which is leading to pricing pressure. In the U.S. and Europe the signals are mixed so that is hampering clients’ ability to take quick decisions.”

India’s information-technology industry is forecast to expand as much as 14 percent in the year started April, according to Nasscom, an industry group.

Volatile Environment

“The volatility in the environment and our ability to predict the ramp ups and the new deal wins and closures is something which is the challenging part right now,” Infosys Chief Financial Officer Rajiv Bansal said.

The ECB expects the 17-nation euro-region economy to shrink 0.5 percent this year before growing 1 percent in 2014.

Net income for Infosys rose 3.4 percent to 23.9 billion rupees in the three months ended March from a year earlier, the company said today. That beat the 23 billion-rupee median of 41 analyst estimates compiled by Bloomberg. Sales rose 18 percent to 104.5 billion rupees, less than the 107.5 billion-rupee median of 46 projections.

“The margin performance this quarter is very disappointing and clearly indicates the firm is in transition,” said Ankur Rudra, an analyst with Ambit Capital Pvt. in Mumbai. “The way they are going, we don’t see a tremendous amount of growth or margin recovery in the short term.”

Reduced Spending

Accenture Plc, the world’s second-largest technology-consulting company, signaled last month that customers may be reducing or holding back on spending because of economic uncertainty, particularly in Europe.

Siemens AG yesterday said that it is targeting the industry division for about half of its planned job cuts as Europe’s biggest engineering company seeks cost savings to counter falling demand.

Infosys got 62 percent of its revenue from North America in the year ended March, 23 percent from Europe, 2 percent from India and the rest from other regions, according to the company.

Top information technology service providers are predicted to post “double-digit” growth as a recovery in the U.S. and in financial services stokes demand, according to Bloomberg Industries analyst Anurag Rana.

“In-line with the results of our December 2012 survey and as indicated by a dismal top line growth guidance, the company continues to struggle competitively” Moshe Katri and Avishal Kantor, analysts at Cowen & Co., wrote in a note to clients today. “The bottomline, we believe Infosys’ issues continue to be company specific rather than industry-specific.”

Before it's here, it's on the Bloomberg Terminal.