Corporate Nov 22, 2011
In the last few minutes of trade on Monday, IT bellwether stock Infosys lost close to Rs 100 and raised an alarm bell that it won't be able to meet its bottomline guidance due to a deteriorating global scenario, which is likely to further impact revenue going forward.
The Bangalore-based company expects to meet the guidance though may not hit the upper end of the annual revenue growth guidance, CFO Balakrishnan was quoted as saying.
On Tuesday, however, Infosys rose 0.93 percent to Rs 2,686.05 at 9:38 am on BSE on bargain hunting even as the company's chief financial officer cautioned that the firm may miss its sales target on weak global economic situation.
Last month, Infosys had forecast sales to grow 17 to 19 percent in dollar terms in the financial year ended March 2012 and 3-5 percent in the third quarter of the current fiscal year.
However, even as the rupee breached the 52 mark yesterday, Infosys fell sharpy.Given the volatility of the local currency, calling its bet right has become increasingly difficult for the blue-chip company. The rupee has tumbled by more than 4 percent against the dollar in the past six days alone, and more than 15 percent against the greenback this year.
In an interview with CNBC TV 18, Infosys CFO Venkatram Balakrishnan said in an extremely uncertain macro environment it is very difficult to confirm whether the sales guidance will be at the upper end of the forecast . Both Europe and United States account for 80 percent of Infosys' revenue. However, the eurozone crisis just keeps getting bigger without any lasting solution where as slowing growth in the United States is beginning to impact companies who are becoming more cautious over spending on projects.
Though India's second-largest software company exceeds its revenue guidance regularly, Balakrishnan said: "We have not revised guidance for now but it should not be a surprise if we fail to meet or remain on the lower end of the guidance."
Yesterday Dow Jones reported that Infosys is likely to miss the top-end of 17-19 percent full year dollar sales. It also said the IT major's third quarter and fiscal year sales growth is also likely to fall short.
Balakrishnan added that the unsettling economic environment in Europe will have a spill over effect on the United States and the rest of the world, which would further weaken the rupee against the US dollar. The company is avoiding long-term hedges and is taking short-term covers because of its call on the rupee. The CFO expects the rupee to breach past the all time low of 52.19 in the coming months due to slowing FDI, high inflation and widening fiscal deficit.
Slowdown in technology spending by overseas clients has put pressure on Infosys as it has been trying to expand its operations over several quarters now. Balakrishan further said that clients are cautious about spending and committing to long-term projects. Since Infosys usually chases deals within the range of $50-100 million, clients will be taking a short-term view on spending as of now, he said.
Infosys' consolidated net profit for the September-ended quarter rose 10.7 percent to Rs 1906 crore on an 8.2 percent growth in revenue to Rs 8,099 crore
The company, for the second quarter in a row, had revised upwards its dollar earnings guidance for FY 2012.
Any comment made by Infosys has a direct impact on the industry. Infosys has remained cautious from the beginning of the year, warning that global uncertainty remains high. Hence analysts are not too worried about the company's revenue guidance.
Market analyst SP Tulsian told CNBC TV 18 that since Infosys has always been conservative in their revenue guidance, their latest comments have been taken 'way too severely'." I don't think that they will really be slipping below the lower range of the guidance given by them."
KRChoksey has recommended a hold rating on Infosys with a target of Rs 2,803, in its 21 November 2011 research report.
"Considering, change in the management expectation of relatively lower growth (in USD terms) in coming quarters and dismal freshers hiring target in FY13E, we maintain our 'HOLD' recommendation on the stock with a price target of Rs 2,803 by assigning multiple of 17 times (in line with our expectation of around 17% earning CAGR from FY11 to FY13E) to its FY13E EPS of Rs 164.9," says KRChoksey research report.
Even broking house Kotak maintained a buy rating on the stock as Infosys' guidance at the upper end is too aggressive and the brokerage had already factored in a miss at the upper end due to a seasonally weak year for IT, execution challenges and a deteriorating macro environment.
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