Deals pipeline encourages Infosys to boost sales growth forecast

BANGALORE • Infosys Ltd, Asia’s second-largest software exporter by value, raised its sales forecast for the year ending March citing a “healthy pipeline” of orders.

Bangalore, India-based Infosys predicts revenue will expand as much as 9% from an earlier target of 8%. CEO Salil Parekh (picture) expects a revival in the company’s financial services business, and its ability to win large deals will help it boost its operating profit margin target to 24%, the company said as it reported earnings last Friday.

That upgrade clubs Infosys with companies such as Oracle Corp and Adobe Inc that raised sales forecasts, while helping its US-listed shares post the biggest gain in more than a month as investors ignored the company’s first quarterly drop in profit in six quarters.

“Infosys delivered a strong positive surprise on revenue growth,” said Sudheer Guntupalli, a Mumbai-based technology analyst at Ambit Capital Pte Ltd, who has a ‘Buy’ rating on the stock. “Strong large deal win momentum” seems to be driving the confidence behind this upgrade.

The company’s American depository receipts surged 5.4% to US$10.41 (RM42.68), the biggest gain since Nov 28. Its shares rose 0.6% to 683.5 rupees in Mumbai ahead of the results.

Infosys posted third-quarter (3Q) profit that missed every analysts’ estimate. Net income fell 30% to 36.1 billion rupees (RM2.17 billion) in the three months ended Dec 31, the first drop since March 2017, compared to the 41.3 billion rupee average of analysts’ estimates compiled by Bloomberg. The company reported sales of 214 billion rupees and it will buy back 82.6 billion rupees of stock, it said in a statement.

The company will repurchase shares at as much as 800 rupees. It will also pay four rupees a share as a special dividend.

“The aggression with which they are approaching the market stands as proof of their internal stability, that’s the one thing that stands out,” said Ashish Chopra, senior group VP at Mumbai-based Motilal Oswal Securities Ltd. “This time last year, they weren’t doing that because they were busy focusing inward.”

Parekh, a year into the role, is trying to drive growth in digital services, re-skill staff and cater to changing client needs. He also faces the challenge of hiring more locals in key markets such as the US, where India’s outsourcing giants face a tightened visa regime under the Trump administration.

Still, client caution and a weak environment in Europe, particularly among banks, will weigh on Infosys’s growth potential over the next 12 months, said Anurag Rana, a senior technology analyst at Bloomberg Intelligence.

The December quarter is seasonally weaker for Infosys and its peers with a number of holidays reducing the amount of days they can bill clients. The year-earlier result included a US$225 million gain from an agreement with US tax authorities.

“The results show that revenue acceleration is the way forward,” said Harit Shah, an analyst with Reliance Securities Ltd. “The company has decided to offer a mix of share buyback and dividend. Investors though would have preferred a pure buyback. The stock is a ‘Buy’.” — Bloomberg