Infosys disappoints with 33% profit rise, outlook cut


India’s Infosys Ltd. Thursday reported a lower-than-expected net profit for its fiscal first quarter and cut its dollar revenue forecast for the year, leading to a 10% decline in its share price.

The Mumbai- and Nasdaq-listed company Thursday said that it now expects its dollar revenue for the fiscal year through March 2013 to rise by 5% at least, compared with the 8%-10% growth it had projected three months ago.
To explain the outlook cut, India’s second-largest software exporter by sales cited shrinking technology investments in an uncertain environment — an indication of the impact of the global economic uncertainty on India’s software industry.
For the fiscal first quarter ended June 30, Bangalore-based Infosys said its net profit grew 33% from a year earlier to 22.89 billion rupees, based on international accounting standards.
This is below the 24.34 billion rupees net profit predicted in a Dow Jones Newswires poll of 23 analysts. Revenue grew nearly 29% to 96.16 billion rupees, below the consensus view of 96.53 billion rupees.
Reacting to the news, Infosys shares dropped to a three-month low of 2,216.05 rupees in morning trade on the Bombay Stock Exchange, dragging the technology index down by as much as 6%.
The shares closed 8.2% lower at 2,265.25 rupees, compared with a 1.5% fall in the benchmark Sensitive Index.
The latest wave of global economic troubles has shaken the company — which is known for aggressively protecting its margins — as clients in its major outsourcing markets of the U.S. and Europe reduce technology spending. 
The few projects on offer are seeing tough competition.
Last year, Infosys cut its sales outlook twice, and eventually missed its own guidance — a first for Infosys, which has until recently consistent exceeded its own financial forecasts as well as market expectations.
“We are definitely in a very uncertain environment,” Chief Executive S.D. Shibulal said, citing slower technology investments by big corporations and a large order from a European utility client being cancelled in the last quarter. The company took a one-time reversal of $15 million because of the lost order.
Chief Financial Officer V. Balakrishnan said the U.S. is “facing a fiscal cliff,” which is affecting investment confidence. 
Infosys earns more than 60% of its revenue from North America.
Adding to the sector’s concerns, a recent comment from the IT chief of General Motors Corp. suggested that the auto major plans to slash outsourcing spending to 10% of its technology budget, from 90% previously.
Mr. Balakrishnan said such instances are “sporadic,” as U.S. corporations will need to outsource to tackle a difficult business environment. also, Infosys has very limited revenue exposure to GM.
A near-8% fall in the value of the Indian rupee against the dollar has come as a boon because the company–which gets more than 80% of its revenue from overseas markets–got more rupees for each dollar.
Because of the benefit from currency conversion, Infosys raised its earnings target for the current fiscal year to 166.5 rupees a share, from the 159.8 rupees-161.4 rupees previously forecast.
Analysts say the key negative in the April-June results is a 3.7% sequential drop in billing rates, which pulled down Infosys’ profitability.
“We remain worried as we think two indicators are now flashing red–order cancellations have started and billing rates have taken a tumble in the quarter,” Barclays said in a note to clients.
Market leader Tata Consultancy Services Ltd. is set to report its quarterly results after the market closes Thursday.