Infosys Raises Sales Forecast as European Demand Revives

Infosys Ltd., India’s second-largest software exporter, raised its annual sales growth forecast for the second consecutive quarter as economic recovery prompts clients in Europe to spend more.

Revenue in dollar terms will increase by between 11.5 percent and 12 percent in the year ending March 31, Bangalore-based Infosys said in a statement today. That compares with the company’s October forecast for growth of 9 percent to 10 percent.

The software provider joins Accenture Plc in posting better-than-estimated earnings signaling outsourcing demand has gathered momentum as Europe recovers from its debt crisis and the U.S. resolves budget negotiations. Worldwide spending on information technology is projected to grow 3.1 percent to $3.8 trillion in 2014, with IT services set to increase 4.5 percent, researcher Gartner Inc. forecast Jan. 6.

“The commentary from the company on the year-end outlook is a good sign for Infosys and the industry,” said Harit Shah, an analyst with Mumbai-based Nirmal Bang Equities Ltd. “The improvement was the result of cost rationalization, the firing of unproductive workers, off-shored a lot of work.”

Shares of Infosys rose as much as 3.6 percent before trading 2.8 percent higher at 3,548.35 rupees as of 12:36 p.m in Mumbai. The benchmark S&P BSE Sensex rose as much as 0.9 percent.

The company also posted third-quarter earnings that beat analyst estimates as customers outsourced more information technology services to the company.

Economic Recovery

Net income increased to 28.8 billion rupees ($464 million) in the three months ended December, from 23.7 billion rupees a year earlier, Infosys said today. That exceeded the 27 billion-rupee median of 37 analysts’ estimates compiled by Bloomberg.

Third-quarter sales climbed to 130.3 billion rupees from 104.2 billion rupees. That compares with 130.9 billion-rupee median of analysts’ estimates.

“The year ahead looks exciting for the IT services industry,” said S. D. Shibulal, chief executive officer and managing director. “We believe the global economic environment has improved and our clients are gaining confidence to invest in their strategic initiatives.”

Co-founder N.R. Narayana Murthy returned as chairman in June with a mission to revive sales growth, has reshuffled top management after eight executives including the company’s U.S. head and a director quit last year. Immigration reform efforts in the U.S., the biggest market for Infosys, may continue to be a source of uncertainty, according to Anurag Rana, an analyst with Bloomberg Industries.

Europe Gains

“We are all equally committed to making Infosys the aspirational company it once was,” Murthy told investors today. “We’ll leave no stone unturned to achieve that.”

Share of revenue from Europe is up to 24.9 percent from 24 percent a year earlier, Infosys said today. North American sales fell to 60 percent of revenue from 61 percent in December 2012, according to the statement.

“Infosys’s potential to outperform its peers has strengthened in light of global recovery and Murthy’s comeback,” Daljeet Kohli, an analyst with India Nivesh Securities Pvt. in Mumbai, said before the earnings announcement.

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