The Hindu Business Line : Infy net may rise 25 pc next year: Analysts

INFOSYS Technologies Ltd is likely to grow its net profits for financial year 2004-05 in the range of 22-25 per cent and sales in the range of 25-28 per cent, analysts and fund managers have said.

Majority of the seven analysts and fund mangers feel that strong rupee could be a dampener to Infosys' bottom line in the next fiscal, even as more business flows to offshore model. This could restrict the company from reporting a robust profit guidance almost-matching its sales guidance. Most of the top Indian software makers earn majority of their revenue in dollars and a strong rupee squeezes profitability from overseas earnings.

Mr Jaideep Goswami, HDFC Securities' research-head, believes Infosys is likely to grow its net profit by 25 per cent in the next fiscal over a 36 per cent sales growth.

"Infosys is known for its cautious guidance approach... so even if the pipeline build-up is extremely robust, externalities and strong rupee would restrict the company to come out with a moderate earnings projections," an analyst with a foreign brokerage said.

It can be noted that Infosys has consistently revised its earnings guidance upwards with every quarterly disclosures in the current financial year.

"We are not looking too much into what the company would say on future earnings... no need to build up additional expectation... that could be bad for the sector as a whole," the analyst with the foreign brokerage added. Infosys stocks had tanked, pulling the entire technology sector and Sensex down last year, when it forecast a 12.5 per cent earnings growth for 2003-04, below the street estimate of 17-18 per cent.

However, Mr Sivasubramanian K.N., Senior Vice-President & Portfolio Manager - Equity, Franklin Templeton Investments, said that despite recent pricing stability, a host of factors including wage pressure, and drop in utilisation rates could impact margins over the coming years. "An appreciating rupee can also hurt medium-term margins. While hedging helps to an extent, it cannot protect margin erosion against secular appreciation of the currency," he added.