Analysts upbeat on Infosys after Q2 results

India’s No. 2 software services exporter Infosys posted a 11 percent quarter-on-quarter jump in profit and cut its full-year revenue outlook by less-than-expected, which cheered investors and lifted the company’s shares by 6 percent.

The company, which counts Goldman Sachs, BT Group and BP among its main clients,reduced its dollar revenue growth forecast to 17.1 percent to 19.1 percent for the fiscal year, from 18 percent to 20 percent projected earlier.

Infosys Chief Financial Officer V Balakrishnan said the reduction in forecast was mainly due to currency volatility. The company also warned of global uncertainty and said that the sovereign debt crisis in Europe was a big issue.

“The global macroeconomic environment is still uncertain. It is and should be a concern for the IT industry,” SD Shibulal, chief executive officer of Infosys, said in a statement. Other officials from the Bangalore-based firm also said the sovereign debt issue in Europe was a “big issue”.

More than half of Infosys’ revenues are generated from the United States. Europe is its second largest market, accounting for 20.5 percent of revenues in the second quarter, down from 21.8 percent a year ago.

“When we talk to our clients, we are definitely seeing delays in decision making….At the same time, we are not seeing project cancellations or programme cancellations. We are not seeing budget cuts for this year at this point in time, but we are in an uncertain environment,” Infosys officials told CNBC TV18.

Prabhudas Lilladhar noted that revenue for North America and Europe grew by 6.3 percent and 0.6 percent quarter-on-quarter, respectively, whereas in terms of verticals, banking and financial services and insurance grew by 4.2 percent and 1.2 percent.

Infosys said consolidated net profit rose to Rs 1,906 crore for the quarter ended September 30, from Rs 1,737 crore reported a year ago, as a weaker rupee boosted results.Revenue rose 16.6 percent to Rs 8,100 crore as the company added 45 clients in the quarter.

Company officials told CNBC TV18 that additions had been strong in the areas Infosys is focusing on - healthcare, life sciences, energy and utilities.

Pricing improved by 0.5 percent from the previous quarter.Among industry segments, retail and life sciences showed the highest growth rates, followed by energy and utilities, according to one brokerage.

A weak rupee, which has tumbled close to 11 percent during the quarter, helped operating margins expand to 28 percent from 26.1 percent.The company is assuming the rupee’s value around 48.98 against the dollar for the rest of the year. The rupee is the main reason why Infosys kayoed market expectations and rubbished the company’s own revenue and earnings guidance given last July by a mile.

Nevertheless, the company expects operating margins to fall about one percentage point in the year ending March 2012.

Earnings per share (EPS) is expected to be in the range of Rs 143.02 and Rs 145.26, revised higher from a year ago. Sharekhan said the strong earnings per share guidance was driven by higher currency depreciation.

Both Prabhudas Liladhar and Barclays Capital maintained their “buy” rating on the stock.

Other brokerage reactions:

Citi said given the macro challenges IT budgets for 2012 will be the key factor to watch out for. Clarity is expected to emerge only by January. “The stock has had a good run in the past month due to INR depreciation and prior underperformance - we see limited upside in the near-term. Over the medium term, we see moderate returns - driving our Neutral recommendation,” the brokerage said in a report.

Goldman Sachs said that the fact Infosys is maintaining its volume growth guidance “reaffirms strength of the demand pipeline in the near term and that growth is evenly spread out over the year”. While the brokerage maintains a buy on the stock, estimates and target price have been placed under review.

Morgan Stanley believed that with earnings and margins coming back, a lot of key concerns have been addressed and has maintained “buy”. “Investors have been concerned about management changes, revenue growth and margin outlook for Infosys,” the brokerage said. “Given the improving quarter-on-quarter revenue growth trajectory, we believe it is just a matter of time before revenue growth concerns also fade for Infosys over the coming quarters.

Nomura Securities reiterated its**“buy”**rating on the stock, while Societe Generale has rated the stock a “sell” because Infosys did not revise its earnings per share in dollar terms.

CLSA also said it was underweight on the sector and retained an “underperform” rating on Infosys. The brokerage said making money on Infosys’ shares was contingent on financial performance in the next financial year. “While the currency driven stock upside seems factored into stocks, downside risk to FY13 (financial year to March 2013) dollar-revenue growth and hence valuations will likely follow through over the next few months. “We would use the post-result strength to exit the stock,” it said in a results note.