Infosys guidance ahead of market expectations

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A few high profile deals of the ABN Amro kind can spring surprises

Krishnan Thiagarajan

Chennai, April 14

The revenue and earnings guidance provided by Infosys Technologies for 2006-07 appears to be higher than market expectations. With revenue growth projected at 29 per cent and earnings at 27 per cent, Infosys has offered the most promising guidance at the start of a year over the past four years (See Table).

The inferences that can be drawn from this projection are two-fold:

One, there is a possibility that Infosys is shedding its conservative guidance stance and its actual performance for the year may only be marginally higher than the guidance.

In any case, if we look at the company's guidance for the past four years, it is clear that the margin of out performance (guidance vs actuals) has been coming down steadily.

Two, what is the likelihood that Infosys continues to remain conservative?

And that its guidance only reflects a robust deal pipeline at the start of the year, with substantial upward revision in store later. There appears to be limited room for such a prospect as Infosys is building on a higher revenue base of $2 billion.

Intense competition

The competition from multinationals such as IBM or Accenture is much more intense than in the past. Though new service offerings such as infrastructure management, testing or consulting have broadbased the overall IT spending opportunity, discretionary IT spending is likely to remain sluggish. This picture could, however, change if Infosys manages to bag a few high profile unbundled deals of the ABN Amro kind during the course of this year.

It may be recalled that the only year when Infosys delivered a huge positive surprise was in 2004-05. It started the year with 24 and 20 per cent revenue and earnings guidance. But on account of a robust first quarter, it revised this guidance sharply to 40 and 34 per cent for the full year. The key variable that worked in the company's favour was the sharp rise in discretionary spend on application development, after more than two years of technology slowdown in the US.

(This article was published in the Business Line print edition dated April 15, 2006)
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