Infosys Tech was hurt by the prospect of paying dues in an off-court settlement over a sexual harassment case filed against the company's former director in the US.
The scrip, already daunted by a weak future outlook, slumped 3.42% to Rs 2,828.55 by 11:40 IST. It came off a high of Rs 2,965.10 achieved earlier in the day. Over 1.65 lakh Infosys shares were traded on BSE thus far.
The suit was filed by an ex-Infosys employee, Reka Maximovitch, a Bulgarian American, against the company and its former director and head of worldwide sales, Phaneesh Murthy. Now, the company has resolved the issue out of court for a sum of $3 million. The actual cost to Infosys will be $1.5 million. Insurers will pay up the remaining $1.5 million under the company's directors and officers liability insurance cover. The insurers will also pay about 80% of the legal fee of $900,000 incurred by the company to deal with the case.
The company said the settlement was entered into with Maximovitch on 25 April 2003, and the final agreement on the entire deal, including formalities, were completed on 10 May 2003. Maximovitch will be paid the amount ($3 million) by the end of May as part of the settlement, which stipulates a 35-day limit.
The market has already been quite put off by the company's muted guidance for FY 2003-04 issued on 10 April 2003. This note dragged the Infosys stock by 30% in just one month's time to Rs 2,928.60 on 9 May 2003 from Rs 4,158.05 on 9 April 2003.
The software bellwether forecast a 11-13% growth in net earnings and a 21-23% rise in revenues on the back of 27-30% increase in volumes and a 4-6% fall in billing rates for FY 2003-04. The company's estimated rise in net profit falls significantly below market expectations of between 18% and 19%. The indication of continued pricing pressures have come as a major negative surprise, and, against the overall assumption of a 2% margin decline in FY04, the guided numbers implied a 4-4.5% drop.
Infosys is the benchmark for the general trend in the software sector. Thus, if Infosys is cautious about its future earnings, then, obviously, the overall growth rate of the software sector may also be discounted.
For the fourth quarter ended 31 March 2003, Infosys Technologies registered a 23% rise in net profit to Rs 259 crore (Rs 2.59 billion) on net sales of Rs 1,020 crore (Rs 10.2 billion).
This quarterly net profit growth came in on the lower side of expectations by capitalmarket.com -- a 23-33.6% rise in net profit to Rs 259-281 crore (Rs 2.59-2.81 billion) and sales of between Rs 980 crore (Rs 9.8 billion) and Rs 1,043 crore (Rs 10.43 billion), up 44-53.3%
BSE code: 500209
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