The Hindu Business Line : Heading for blockbuster year

A robust double-digit growth in revenues and post-tax earnings and upward revision in guidance for the second successive quarter clearly reflect that Infosys Technologies is heading into a blockbuster year. Even assuming that the second quarter is traditionally the best quarter for any software company, a 14.6 per cent growth in revenues in the latest quarter coming on top of a 14.9 per cent jump clocked in the first quarter is an impressive record.

Analysing the performance of Infosys for the second quarter ended September 30, 2006, three variables stand out:

One, based on the latest financial guidance, it appears that Infosys may end up recording the best financial performance in the past five years.

In 2006-07, the company expects to notch revenue growth of 46 per cent, crossing $3 billion and per share earnings growth of 46.6 per cent.

Based on the third quarter revenue projections of 5 per cent, the implied fourth quarter growth in revenues is 5 per cent, which should be achievable.

Similarly, the per share earnings guidance also appear well within the comfort zone, if the past track record and robust IT spending patterns are sustained over the next couple of quarters.

Earlier, in 2004-05, the company had notched an impressive 47 per cent growth in revenues and post-tax earnings.

Two, it is significant to note that the latest revision in revenue (with incremental revenues of Rs 499 crore) and per share earnings (of Rs 3.1) guidance for 2006-07 has been dictated entirely on business volumes.

This lends greater confidence to the overall earnings guidance projected by the company.

Compare this to the first quarter guidance revision where 40-50 per cent was explained by rupee depreciation and only the balance was attributable to business momentum.

In the latest quarter, Infosys has revised its revenue guidance by 3.7 per cent to Rs 13,899 crore and per share earnings by 5 per cent to Rs 66, compared to the guidance at the end of the first quarter.

Finally, the revenue growth in the latest quarter continues to be powered by the contribution of the top-10 and top-five clients. This reflects the strong potential for generating additional revenues from the existing clients of Infosys.

While the top client has grown by 30 per cent on a sequential basis, the remaining four have also recorded robust growth of 20 per cent.

The offshore billing rates, which had remained subdued in the 0.2-0.3 per cent range in the past five quarters have perked up by 1.1 per cent in the latest quarter.

If this encouraging trend sustains, it will provide the additional kicker to volume-led business growth.

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