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Rupee plight in Infy dollar delight
Net profit jump beats market forecast

July 11: Infosys Technologies — the poster boy of India’s software services industry — beat market forecasts with an almost 35 per cent leap in net profits at Rs 1,079 crore during the first quarter ended June 30 compared with the year-ago period.

But on a sequential quarter basis, its net profit actually tumbled 5.8 per cent from the Rs 1,145 crore recorded in the fourth quarter of fiscal 2006-07 that closed on March 31.

A surging rupee, growing wage bill and rising visa costs wrecked the first quarter forecasts that the company put out in early April and badly crimped its margins — a fact that weighed on the market which clobbered the stock and sent it skidding almost 5 per cent to Rs 1,929.70 at the end of a volatile day of trading.

The company, which earns 98.2 per cent of its revenues from outside India, topped its dollar guidance for the quarter earning revenues of $928 million against the April forecast of $904-908 million — and put it well on course to meet its target of emerging as a $4billion company by the end of this fiscal.

But its rupee guidance went awry: it earned an income of Rs 3,773 crore against the forecast of Rs 3,896 crore to Rs 3,913 crore.

Infosys, which earns 62.6 per cent of its overall revenues from the US, was forced to raise its dollar guidance for the second quarter and the full year ended March 31 next year, but trimmed its rupee guidance figures for both.

“It is surprising that Infosys raised the bar on full-year revenue growth in dollar terms by just 1 per cent to 31 per cent year-on-year at the upper end against 30 per cent earlier,” said CLSA in a report. “The tepid rise in the dollar guidance implies that while demand is good, there is a serious dis-connect between what the street interprets as strong demand and what the company is seeing on the ground.”

Infosys pared its full-year per share earnings forecast to Rs 78.20 to Rs 79 based on an exchange rate of Rs 40.58 per dollar, from Rs 80.29 to Rs 81.58 estimated in April that had assumed the rupee at 43.10.

In dollar terms, it raised full-year guidance to $1.92 to $1.94 per share from $1.86 to $1.89 forecast in April.

“The sharp appreciation of the rupee against all major currencies impacted our operating margins during the quarter,” chief financial officer V. Balakrishnan said. However, the firm had still been able to charge higher rates from new customers.

Its operating margin fell to 24.9 per cent in the June quarter from 27.8 per cent in the previous three months ended March.

Balakrishnan, who expects the rupee to be volatile in the short term, said Infosys had hedged $925 million at a rate of Rs 40.58 a dollar, and may increase hedging.

“We are not seeing any concerns on the ground. Volume growth continues to be strong,” he said. “We will be able to maintain the net margins for 2007-08 in spite of the rupee moving against us.”

Managing director and chief executive S. Gopalakrishnan said demand for the firm's services remained strong, enabling the company to add 35 new clients in the June quarter and 3,730 employees on a net basis. It reported an attrition rate of 13.7 per cent over the last 12 months — almost two percentage points higher than the 11.9 per cent it reported in June last year.

The company said it would hire 26,000 people in the year to March 2008, up from about 23,000 it had forecast in April.

Wages in the sector are also rising by about 10 to 15 per cent a year, compared with 2 to 6 per cent in the West.

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