Infosys' growth falls in uncertain market

The Indian outsourcer may have also failed on execution of some of its strategies, analysts said

Indian outsourcer Infosys blamed continuing global economic uncertainties for a slide in year-on-year revenue growth in U.S. dollar terms, which declined to 2.9 percent for the third quarter, from 16.7 percent a year earlier.

"It's still very choppy out there, and lots of uncertainty," Ashok Vemuri, head of Americas at Infosys, said on Friday. Although some economic indicators are moving up, it is not translating into speedy IT buying yet, he added.

The company has been blamed for poor execution in its expansion into value-added services like consultancy, technology platforms, cloud and mobility. Last month it said it had signed a definitive agreement to acquire Lodestone Holding, a management consultancy firm in Zurich with skills in the area of SAP software.

It takes some time to ramp up the wins, and the company is already seeing strong traction in value-added businesses, Vemuri said. The company's consulting business for example grew 3 percent quarter-over-quarter, he said.

Revenue for the quarter was US$1.8 billion, while net income was $431 million, up by 4.9 percent from a year earlier, but lower than the 10 percent profit growth it posted in the same quarter last year.

The company's profit was hit by currency fluctuations, investments in setting up facilities for clients, and also in training staff in new technology areas such as mobility and cloud computing, Vemuri said. The company bagged six large deals in the quarter, he said.

Because of the deprecation of the rupee against the dollar, revenue growth was higher in rupee terms, at about 22 percent, while net profit grew 24 percent.

The company added 39 new clients in the quarter, and added 2,610 employees during the period to take the total number of staff to 153,761 as of Sept. 30.

Infosys, India's second-largest outsourcer, has maintained its forecast for its fiscal year ending March 31, 2013. Revenue is expected to be at least about $7.3 billion, up by 5 percent from the previous year.

"We expected that the company would revise upwards its revenue forecast for the year, as a result of the Lodestone acquisition," said Mridul Gupta, senior analyst at Everest Group. That the company did not revise its estimate suggests that it is facing pressure on pricing and that the market, despite recovering, is still very slow, he said.

Infosys has lagged in revenue growth recently behind the number-one Indian outsourcer, Tata Consultancy Services, leading some analysts to hold that the company has problems in execution. There has been management turmoil, reflected again on Friday when the company announced that the company's CFO, V. Balakrishnan, is moving from his job this month while retaining his position on the company's board, Gupta said.

With cash and cash equivalents of over $4 billion, the company is seen, like many other Indian outsourcers, as not being aggressive enough in expanding its business across continents by acquisitions. It is acquiring Lodestone for an aggregate enterprise value of 330 million Swiss francs (US$350 million) in cash.

North America accounted for 63.9 percent of its revenue in the third quarter, with Europe contributing 21.9 percent. Revenue growth in North America was up by about 2.2 percent at constant currency rates, while it was up 5.1 percent in Europe starting from a smaller base. The growth there reflects a growing interest in offshoring by European customers aiming to cut costs, Vemuri said.

John Ribeiro covers outsourcing and general technology breaking news from India for The IDG News Service. Follow John on Twitter at @Johnribeiro. John's e-mail address is john_ribeiro@idg.com

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