You are here:

Infosys profit to rise 25 pct as global clients look to squeeze costs

BANGALORE (Reuters) - Infosys(INFY.NS), India's second-ranked software services provider, is likely to report a 25 percent increase in quarterly profit on Friday, as European firms come under pressure to shift more backroom functions offshore to keep their costs in check.

The information technology bellwether caught analysts on the hop in July when it cut its annual sales forecast more deeply than expected - as global economic uncertainty hit tech spending - but its shares have risen by a fifth since its lows that month, beating gains of 13 percent on the BSE Sensex and nearly 9 percent by market leader Tata Consultancy Services (TCS.NS).

July-September net profit is forecast at 23.8 billion rupees, according to Thomson Reuters data. Profit in the previous quarter grew 33 percent from a year earlier.

The recent stock rally has come as investors see some signs of stability for the global economy and hope for an uptick in demand, though the International Monetary Fund this week warned that the United States and Europe could slide back unless they resolved their debt troubles. IMF head Christine Lagarde has blamed Europe and the U.S. - the mainstays of India's $100 billion software and services outsourcing industry - for companies putting off investment and hiring.

GRAPHIC: Infosys underperforms r.reuters.com/quq42t

LODESTONE LIFT

Analysts predict Infosys, which has a market value of around $26 billion, will revise its revenue growth estimate to around 6 percent for the year to end-March, boosted by its acquisition last month of Swiss consultancy Lodestone. In July, the company cut that forecast to 5 percent from its April estimate for 8-10 percent growth. Excluding Lodestone, Infosys' legacy business is expected to have grown slightly less than that 5 percent estimate.

While Infosys isn't expected to provide a very strong guidance number, "they may signal they're willing to be more proactive with their cash," said P. Phani Sekhar, a fund manager at Angel Broking in Mumbai, which owns Infosys stock. "They may say they aren't averse to more such acquisitions."

Infosys agreed to pay about $350 million - its biggest buy to date - for Lodestone, a specialist in advising companies such as BMW AG (BMWG.DE) and Roche Holding AG (ROG.VX) on how best to use SAP AG's (SAPG.DE) business management software.

"They want to be the Accenture (ACN.N) of India's IT industry," said Sekhar, referring to the U.S. consulting and outsourcing group that is a major global rival.

For now, though, Infosys has to compete for orders in the more commoditised sectors of maintaining computer systems, software applications and helpdesk support. Rivals TCS and HCL Technologies (HCLT.NS) have aggressively chased such contracts.

TCS is due to report its July-September results on October 19.

Partha Iyengar, Gartner's top analyst in India said this week there were strong indications that software services providers would outperform the industry estimate this year. The National Association of Software and Service Companies (NASSCOM) has estimated exports will rise 11-14 percent in the year to March - down from 16 percent last year and about 30 percent before the global financial crisis.

"I'm leaning towards ... we're actually going to outperform the NASSCOM estimates in terms of IT services growth," Iyengar told reporters by phone from a symposium in Goa.

Iyengar said there was a clear drive to reduce the cost of IT, the traditional cost of running a business. "That's the sweet spot the Indian players have played in for a long time," he said.

(Reporting By Harichandan Arakali; Editing by Ian Geoghegan)