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Bangalore, Jan. 11

A VOLATILE rupee impacted the profitability of Infosys Technologies for the third quarter ended December 2005, which fell marginally short of analysts' expectations.

Sluggish volume growth of a little over 6 per cent against the double-digit growth a year ago also weighed down on the company's earnings.

Infosys reported a net profit of Rs 649 crore for the period under review, a growth of 31 per cent over Rs 497 crore in the corresponding previous period.

Revenues grew by 35 per cent to Rs 2,532 crore from Rs 1,876 crore earlier.

On a sequential basis, the net profit was up by 7.1 per cent while the revenues grew by 10.4 per cent.

"We have seen another quarter of steady growth," said Mr Nandan Nilekani, Managing Director and CEO. "Client addition continues to be strong. Our initiatives in strategic alignment, capability building, and operational excellence are all on track."

Infosys raised its forecast for full year by about 2-3 per cent. It expects income to be in the range of Rs 9,487 crore and Rs 9,496 crore, a year-on-year growth of 33.1-33.2 per cent.

The earnings per share before exceptional items is expected to be between Rs 89.90 and Rs 90.30, a year-on-year growth of 30.69-31.27 per cent.

The rupee volatility impacted Infosys's profits by $2 million. But the 2.3 per cent rupee depreciation during the quarter resulted in a benefit of $10.3 million, though the company lost $12.6 million as hedging costs.

"The benefit of the rupee depreciation on the operating margin was offset by hedges at the non-operating level," said Mr T.V. Mohandas Pai, CFO.

A depreciating rupee boosted operating margins to 34 per cent from 32 per cent, he added.

Analysts said that the company's operating margins were unlikely to be sustained during the next quarter as the rupee has appreciated now.

The Infosys stock has gained about 19 per cent in the period under review.

"The pricing environment continues to be stable with a slight upward bias," said Mr Kris Gopalakrishnan, COO, adding that new customers were coming in at 3-4 per cent higher rates.

The European operations grew faster compared to other geographies and revenues increased to around 25 per cent of total revenues.

Infosys, with close to 50,000 employees after net additions of 3,226 people, added 36 new clients in the third quarter, taking its total client base to 454.

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(This article was published in the Business Line print edition dated January 12, 2006)
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