Infosys gains momentum

Infosys Technologies ruled firm last week ahead of the announcement of its Q4 and FY 2002-03 results next week.

From a recent low of Rs 3,990 touched on 1 April, the  stock of the Bangalore-based tech bellwether has risen by as much as 7.76% to settle at Rs 4,299.80 on 4 April 2003, following buying support from operators as well as institutions.

Institutions, especially domestic ones, are said to have accumulated the Infosys Technologies stock in the last couple of sessions.

The rally on the counter has stemmed from expectations that the company, while announcing its Q4 and FY 2002-03 results on 10 April 2003, may give a guidance that the US-Iraq war will not have much impact on its business if it gets over quickly. Earlier, there have been concerns in the market that the company may give a cautious outlook. Players felt the war may lead to US companies delaying their decision-making process, which, in turn, could affect fresh order flow for domestic IT companies.

Meanwhile, the hopes of the ongoing US-Iraq war getting over quickly have been re-kindled with the US troops reaching the Iraqi capital of Baghdad. It is believed that a quick end to the armed conflict would help the sluggish US economy, which accounts for a substantial portion of ITL's revenues.

ITL's Q4 results are expected to be line with the company's guidance. As per the projections given at the time of its Q3 results, ITL expects income from software development services and products to be in the range of Rs 975 crore to Rs 989 crore, translating into a 1.7% - 3.2% growth on a sequential basis in Q4. The company expects earnings per share to be between Rs 39.1 to Rs 39.4, translating into 1% - 1.8% growth in its bottom line on a sequential basis.

Analysts expect ITL's guidance for FY 2003-04 to be conservative. But they feel the company may report a volume growth in Q4, and there could be a sequential improvement in margins if there isn't a repetition of expenses on software and sales and marketing.

For the full year FY 2002-03, ITL had revised its revenue guidance. As per the revised figures, the company expects a revenue growth of 37.4% - 38% on a year-on-year basis. On the earnings front, it expects 18.6% to 18.8% year-on-year growth in FY 2002-03 EPS in the range of Rs 144.7 to Rs 145.

Analysts, however, said the cause for concern is the fact that ITL and the IT sector as a whole have been witnessing pressure on margins due to multiple factors like a surge in recruitment, change in the on-site/off-shore mix whereby the share of onsite has been relatively higher than it used to be earlier (the margin on on-site work is lower than off-shore work), surge in marketing expenses, and expenditure on acquiring additional software. 55.5% of the revenues of the software major in Q3 were on-site and 44.5% off-shore. In Q2 ended September 2002, on-site revenues were 54.6% and off-shore at 45.4%.

ITL has seen healthy project starts over the last three quarters. In Q3, 384 new projects were started. In fact, the company saw a slew of projects, which started a couple of quarters back, moving on to off-shore. Initially, most of these projects were on-site in nature.

While outsourcing is seen as a major driver of  ITL's future growth, there have been concerns over a host of US states having introduced Bills barring governments from outsourcing IT-enabled services work to cost-effective destinations.

Meanwhile, ITL's shareholders, in late February 2003, had approved the company's proposal to go for a sponsored secondary American Depository Receipt programme. The shareholders cleared the sponsorship of the ADR issue in the range of 2 million to 3 million shares (equivalent to 4 million to 6 million ADRs). The price of the ADR will be determined by the lead underwriters. All shareholders holding Indian equity shares will have a pari-passu right to participate in this offer.

BSE code: 500209