Infosys expected to report 52 per cent revenue growth

As it bellwether stock Infosys Technologies prepares to announce its Q4 and full-year results for 2006-07, all eyes will be on its guidance for the coming year.

As it bellwether stock Infosys Technologies prepares to announce its Q4 and full-year results for 2006-07, all eyes will be on its guidance for the coming year. The country’s second largest software company, which traditionally kicks off the IT results season, is expected to close the fiscal with a full-year revenue growth of 52 per cent at Rs 14,000 crore, against Rs 9,172 crore in the previous fiscal.

That will beat its own guidance for FY07 for income (Rs 13, 350 crore) and growth (Y-on-Y of 41 per cent). Significantly, profit growth is expected to be about 50 per cent at Rs 3,700 crore, against Rs 2,421 crore in FY06. The growth, analysts say, is significant and will primarily be driven by strong volumes from the company’s offshore businesses and operating margins, which are expected to grow 31.5 per cent in FY07 and 31.1 per cent in FY08. In line with this, on Wednesday the second most-heavily weighted stock on the index gained 2.6 per cent to close at Rs 2,043.

But even this may not be enough to allay fears that the software services industry is facing tough times from a sharply appreciating rupee that cuts into export earnings, rising wage inflation, a possible slowdown in technology spending by US companies, and a higher tax burden.

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“What actually matters is the company’s guidance for financial year 2007-08, which is expected to be lower than last fiscal’s. If Infosys has to grow at 30 per cent, the initial guidance should be at least 24 per cent,” said Emkay Shares analyst Sanjeev Hota.

While the rupee appreciation, which might pull margins down by 50 basis points in Q4 over Q3, may not have too much of an impact on 2006-07 figures since it started strengthening against the dollar only in last two quarters after depreciating in the first two quarters, the longer term impact may be more pronounced.

Confirms PricewaterhouseCoopers associate director Vikram Bapat, “The rupee appreciation will hit the offshore subsidiaries of Indian companies. There has been a trend of 20-25 per cent revenue growth year-on-year, but this time it is likely to be lower.” Curiously, the trend in the last few years has been that Infosys has disappointed every alternate year on guidance.