Tech scrips hitch a ride on Infosys wagon
By Mumbai: | 14 Oct 2002
The income from software services and products from overseas operations was 34.3 per cent higher year on year at Rs 857.2 crore; it was 88.4-per cent higher year on year from domestic operations at Rs 22.3 crore.
Infosys has also raised its estimate for the year ending 2003, a distinct sign that happy days are here again. Knowing Infosys, one can be sure that they will achieve or even surpass the revised estimates. The question is, does this spell the revival of the once-vigorous IT industry, or are the results only company-specific? The stock market’s initial reaction surely indicates that good times are here for the industry. Technology stocks surged ahead after hearing Infosys’ results.
Infosys
managing director Nandan Nilekani says: “In the world
market, while there is cost pressure and uncertainty,
the Infosys business model of customer focus, with its
value proposition and delivery capabilities with increased
acceptance of offshore outsourcing model, has accelerated
revenue growth beyond our initial projections… We
have increased our guidance for fiscal 2003.”
Greener
pastures
The company expects increased off-shoring opportunities,
given 260 new projects and 18 new client acquisitions,
including Porsche AG, Commonwealth Industries and Vcommerce,
during the quarter. “While the initial stages of
the projects will see more onsite activities, once it
gets under way we will try to increase offshore content
in these projects,” explains Nilekani.
While the EPS increased from Rs 30.47 to Rs 34.1 this quarter, an interim dividend of 250 per cent was declared. During the quarter, the onsite-offshore mix was 54.6:45.4 compared to 52.7:47.3 in the previous quarter. The company continues to face pricing pressure, says Nilekani. “As long as the onsite mix remains higher (with low margins), the earnings margins cannot increase further.”
The company’s repeat business decreased to 94.9 per cent compared with 98.5 per cent during the first quarter of fiscal 2003. While business from North America increased to 73.8 per cent, up from 72.3 per cent last quarter, European business declined to 16.5 per cent compared to 19.3 per cent during Q1 of FY03.
Contribution from the telecom sector slid further to 14.6 per cent of its revenues during the second quarter compared to 15.2 per cent recorded the previous quarter. “The telecom sector is not expected to perform well over the next few quarters. We have been affected by the adverse business of clients and in the US the telecom sector has overspent in broadband and other technologies, which will take some time to rectify. In the meantime, Infosys will be discriminating in choosing telecom clients,” says Infosys head (worldwide sales) and senior vice-president Basab Pradhan.
Looking
at IT
Consultancy services have picked up steam with an increase
in revenues of 9.7 per cent compared to 8.1 per cent last
quarter. Growth is also expected from consultancy, the
enterprise sector and packaged implementation. Progeon,
the business process outsourcing subsidiary, has bagged
one new client (total three clients) with 287 employees
and revenues of Rs 2 crore for this quarter.
Moreover, to step up growth, Infy has incentivised sales and is embarking on aggressive sales and marketing activities. The IT firm has provided an aggregate amount of Rs 23.76 crore towards strategic investments during the quarter.
Infosys Technologies’ performance led the rally in major IT scrips. The Infy stock emerged as the top gainer in the Bombay Stock Exchange (BSE) 30 Sensex and BSE technology index. On 10 October 2002, punters had pushed up the stock by 4.6 per cent (Rs 160) to close the day at Rs 3,634.8 after touching a high of Rs 3,650 during the day.
Brokers and analysts say Infosys has outperformed market expectations with its performance for the second quarter ended 30 September 2002. The buoyancy has percolated to other IT companies like Wipro, HCL Technologies and NIIT. But institutional selling pulled down Satyam Computers. Wipro spurted 1.81 per cent to close at Rs 1,352.6, HCL Technologies gained 1 per cent to close the day at Rs 200.35 and NIIT surged 2.45 per cent to close the day at Rs 133.85.
Second-line technology counters like Visualsoft, Information Technologies, Rolta, Mphasis BFL, Hughes Software and Pentasoft also figured in the top 10 gainers in the BSE IT index to close with gains in the region of 1-5 per cent. NIIT’s alliance with the US-based Sabre Holdings and excellent results from Mphasis also added to the feel-good factor.
Infosys’ performance has infused a fresh lease of life into an otherwise listless market. The market was looking for some news to ride on and the results have provided just that. The show is fairly decent and it has virtually cut down the downside risk in the stock to a large extent. But one has to wait for the results of Wipro and Satyam to see whether there can be an uptrend on technology counters.
Let’s hope for the best.