Aijaz Rahi, Associated Press
MUMBAI, India — Quarterly profits at Infosys beat expectations, but the outsourcing bellwether said Thursday that the global economic slowdown and chaos in Europe would hit growth going forward, disappointing investors.
Profit for the December quarter was 23.7 billion rupees ($458 million), up 15.4 percent in dollar terms from a year ago, beating expectations.
Revenues were 93.0 billion rupees ($1.8 billion), up 13.9 percent in dollar terms.
The company said that while slowing global growth and the crisis in Europe could ultimately spell opportunity for Indian outsourcers, in the short term growth will be less than expected. It said revenue and earnings growth this quarter, in dollars, would be flat and cut its guidance for the year.
It said it expects revenues for the fiscal year ending March to grow 16.4 percent in dollar terms and earnings per share to grow 14.5 percent. In October, it had said revenue growth could be as high as 19.1 percent and earnings per share could rise as much as 16.8 percent in dollar terms.
Nearly two-thirds of the company's revenues come from the United States. Europe is its second-biggest market, accounting for another 23 percent of revenues.
Executives expressed hope that companies, especially in Europe where levels of offshoring are low, eventually will send more work overseas as cost pressures intensify. In the short term, however, the failure to resolve Europe's deep debt problems has hurt sentiment and made clients cautious.
"There is no definitive answer to the Eurozone crisis at this point. Client confidence is down," chief executive S.D. Shibulal told CNBC-TV18. "Spending is going to be choppy."
Revenues from European clients grew 13.7 percent from the prior quarter, executives said. The company added 49 new clients, including 6 Fortune 500 companies and closed several $5 million plus deals, including one in Europe, executives said.
"Investment has become very challenging in most of the markets where we operate," chief financial officer V. Balakrishnan told reporters. "We are seeing clients much more cautious in their spending."
He said volumes grew 3.1 percent and pricing ticked up 5 percent from a year ago. Executives said they expect pricing to remain stable this quarter, even as client budgets remain flat or shrink slightly.
Operating margins grew 3 percent during the quarter, as extreme rupee depreciation made up for higher costs, executives said.
Earnings in rupee terms were helped by the weakness of the Indian rupee, which plunged 11 percent during the December quarter from the prior quarter.
Balakrishnan said managing such extreme currency volatility going forward would be a challenge for the industry.
The stock plunged, closing down 8.4 percent.
"The body language and tone seem to suggest that clients are not confident because of the challenging environment in Europe," said Manish Sonthalia, a fund manager at Motilal Oswal in Mumbai. "Extending into next year's guidance we could look at 16 to 17 percent dollar revenue growth, which is lower than what the street has been expecting."
He said that over the next five to 10 years, Indian outsourcers like Infosys and Tata Consultancy Services — both stocks Motilal Oswal owns in its funds — could benefit from cutbacks in developed markets.
"Austerity is the buzzword happening in Europe," he said. "If you are looking to cut costs, you can do that through offshoring."
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