The Hindu Business Line : Rupee impact: Infosys cuts earnings guidance

Overcoming rupee worries: Mr S. Gopalakrishnan (left), CEO and Managing Director, Infosys Technologies Ltd, and Mr S.D. Shibulal, Chief Operating Officer, at a press conference to announce the first quarter results at Infosys Campus in Bangalore on Wednesday. – G.R.N. Somashekar

Our Bureau

Bangalore July 11

Stung by the sharp rise of rupee against dollar, Infosys Technologies Ltd for the first time ever reduced its profit and revenue outlook for the fiscal 2008. But, the company raised its dollar-term guidance marginally for the year.

Infosys expects its earnings per share (EPS) to rise as much as 14 per cent to Rs 79 for year-ended March, 2008 compared with the earlier estimate of Rs 80.29. Revenues are expected to rise as much as 18 per cent to Rs 16,433 crore, as against the earlier forecast of Rs 17,038 crore.

Tracking the earnings projections, especially the conservative dollar-term outlook, shares of Infosys fell to an intraday low of Rs 1,925 after touching an intra-day high of Rs 2,025 to close at Rs 1,929.70, a loss of 4.47 per cent over previous close.

A tax write-back of Rs 51 crore and a sharp rise in other income at Rs 253 crore helped the company surpass street expectations and post a net profit of Rs 1,078 crore for the June quarter, a 34.5 per cent growth over the corresponding quarter of last fiscal’s Rs 1,144 crore.

After taking a hit of Rs 287 crore due to exchange rate volatility, Infosys reported a 25 per cent growth in revenues at Rs 3,773 crore, consistent with street estimates, compared with Rs 3,015 crore in the June quarter last year.

On a sequential basis, Infosys’ net profits saw a negative growth of 5.7 per cent, while its revenues were flat.

“Business parameters have been strong if you look at the growth both in revenues and volumes,” said Mr S. Gopalakrishnan, CEO, adding “the impact due to rupee rise was beyond my control”.

The software major reported a volume growth of 6.9 per cent during the quarter, while its non-top 10 clients grew 9.8 per cent sequentially.

“The sharp appreciation of the rupee against all major currencies impacted our operating margins,” said Mr V. Balakrishnan, Chief Financial Officer. “However, our robust and flexible operating and financial model enabled us to maintain our net margins while absorbing the impact of appreciating currency, higher wages and visa costs,” he said.

Further, Mr Balakrishnan said “The downward revision of the earnings guidance reflects the change in environment caused by the rupee appreciation.” The rupee rose by 7 per cent against dollar this quarter from 43.10 to 40.66 as of end-June

Infosys was assuming a rate of Rs 40.58 to a dollar in its forecast and has not factored any large deals. It has hedged $925 million at Rs 40.58, Mr Balakrishnan said. “All benefits have come in the non-operating income,” Mr Balakrishnan said adding “if required we will increase the hedging”.