Friday, 9 October 2009

Infosys takes another small step forward

(By Anthony Miller – Friday 9th October 2009 8:30am). Very much in keeping with its ever cautious view on market conditions, Infosys took another small step forward on its guidance, raising its FY revenue forecast (to March ’10) from around $4.49b to $4.61b, though this still represents a 1% yoy decline. The rise was on the back of a slightly better Q2 result (to 30 Sep.) which saw revenues climb 2.9% sequentially to $1.15b (very little FX effect) rather than the flattish forecast last quarter. Management guided December quarter revenues pretty much the same as Q2.

CEO ‘Kris’ Gopalakrishnan reported that “the business climate has improved” with pricing stabilising. Infosys also expanded operating margins yet again, by 20bps seq to 30.3%, with a 30bps cut in SG&A margin more than compensating for a 10bps easing in gross margins (42.6%).

The ‘recovery’ seems to be led by the US (66% of total revenues) with 4.8% seq. growth. As reported, European sales (inc. UK) declined 3.4% seq., though that was ‑7% at constant currencies. Infosys scored some more sales of its Finacle banking package in EMEA with two of the four new clients coming from our region.

As the 2nd largest India-based SI, Infosys sets the tone for the reporting season. Much like Accenture (see Accenture signals 2010 a down year), Infosys is probably low-balling the FY number to avoid a ‘miss’. But the slightly more upbeat underlying messages suggest that management think they will do better – not a lot better, but at least low single digit yoy growth. Of course, if we are in a “W” rather than a “V” ‘recovery’, then we may get quite a different message in a couple of quarters.

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