Home Economy Strong rupee lowers Infosys guidance despite profit rise

Strong rupee lowers Infosys guidance despite profit rise


Bangalore : A surging rupee, higher salaries and visa fees have for the first time impacted the annual revenue guidance for the fiscal year 2007-08 of Infosys Technologies Ltd, India's second largest IT company, despite a rise in net profit in the first quarter.

In a departure from its tradition of revising the yearly guidance, sometimes even on quarterly basis, the company Wednesday lowered the revenue guidance for this fiscal under the Indian GAAP to Rs.162-164 billion from Rs.170-173 billion projected in April.

On annualised basis, the year-on-year (YoY) growth has been revised downwards by six percent to 16-18 percent from 22-24 percent.

The net profit for the first quarter (Q1) grew by 35 percent YoY to Rs.10.79 billion from Rs.8 billion a year ago under the Indian GAAP. The earnings per share (EPS) is within the guidance range at Rs 18, posting YoY growth of 32 percent.

The net profit, however, includes a reversal of tax provisions of Rs.510 million.

Under the US GAAP, the net income for the first quarter shot up to $263 million from $174 million in the same quarter of the last fiscal, registering a whopping 51 percent YoY growth.

Similarly, consolidated revenue for Q1 is $928 million as against $660 million a year ago, an increase of 41 percent YoY.

"The sharp appreciation of the rupee against all major currencies impacted our operating margins during the quarter," Infosys chief financial officer (CFO) V Balakrishnan said in a statement here.

At the same time, the CFO maintained, a robust and flexible operating and financial model enabled the company to maintain its net margins while absorbing the impact of appreciating currency, higher wages and visa costs.

"Our liquidity has been strengthened with cash and cash equivalent reaching $1.6 billion (Rs.64.42 billion) by the end of the first quarter (April-June)", Balakrishnan added.

Operating cash flows during Q1 were Rs.9.02 billion as against Rs.4.64 billion in the same quarter of the last fiscal.

The rupee has appreciated by the end of June to Rs.40.58 for one US dollar from Rs.43.10 in March-end, an increase of Rs.2.52 or 6.2 percent in just three months.

Under the US GAAP, the revenue guidance has been, however, revised marginally upwards to $4-4.05 billion from $3.95-4.02 billion given earlier, projecting YoY growth of 29-31 percent as against 28-30 percent earlier.

The company has also lowered the guidance for earnings per share (EPS) to Rs.78-79 from its earlier projection of Rs.80-81 under the Indian GAAP. In percentage terms, the YoY growth in EPS is expected to be 13-14 percent as against the earlier projection of 20-22 percent.

For the second quarter (July-Sept), the consolidated revenue is estimated to be Rs.40 billion, a YoY increase of 16 percent under the Indian GAAP. The EPS is expected to be Rs.19, a YoY growth of 13 percent.

Under the US GAAP, the revenue for the second quarter (Q2) is expected to be about $984 million, a YoY growth of 32 percent.

Reflecting the impact of an appreciating rupee, the company's consolidated revenue for the first quarter of this fiscal is Rs.37.73 billion as against the guidance figure of Rs.39.13 billion under the Indian GAAP. The YoY growth is, however, 25 percent.

"As clients recognise the strategic imperative of global sourcing in an increasingly flat business world, the demand for large end-to-end players like Infosys continues to be strong. We continue to focus on being a partner of choice to our customers," new CEO and managing director S Gopalakrishnan said.

During the quarter, the company incurred capital expenditure of Rs.3.36 billion as against Rs.1.93 billion during the same period a year ago.

The company, including its subsidiaries, added 35 new clients during the quarter.