The company, long considered a bellwether for India’s showcase $60 billion IT industry, disclosed its client acquisition numbers were the lowest in four years and its costs were increasing because it was paying higher wages to retain talent in the ultra-competitive industry.
The company narrowly missed expectations with a 15.4 percent rise in first-quarter profit and its shares were hammered in Mumbai, falling nearly 6 percent.
“This is an environment where we need to be cautious. You can look at all the things which are happening,” said the company’s chief operating officer, South Dakota Shibulal.
“There is still economic instability...there is the European crisis still unfolding. There is always talk about the government spending coming to an end,” he said.
The earnings announcement comes about two weeks after US technology outsourcing and consulting firm Accenture raised its annual earnings forecast and posted results that beat Wall Street estimates.
US companies often benefit at the expense of their Indian rivals when US spending slows and American companies get criticized for outsourcing overseas.
More than 70 percent of Infosys’ revenue is generated in the United States and Europe, “making Infosys vulnerable to the global economy and creating volatility for the company,” said John Lin, manager of Uni-President Asset Management’s Chindia Fund in Taiwan.
The results were “slightly lower than expectations and its top-line growth is faster than bottom-line growth, meaning its costs are rising more than the company had forecast,” he said.
Infosys maintained its dollar revenue growth forecast at 18-20 percent for the fiscal year ending March 2012. Analysts expected full-year revenue growth of 20 percent, according to Thomson Reuters I/B/E/S.
“At this point of time we are very cautious because the global economic environment has not recovered. The volatility still continues,” said Infosys chief financial officer, V. Balakrishnan.
“All the uncertainty we talked about in the last quarter still remains. In fact, in Europe it has only now become bigger,” he told a television channel.
Infosys added 26 clients in the quarter, its slowest pace of quarterly customer acquisition in at least four years, highlighting global economic uncertainty and concerns about top management changes at the company.
In April, Infosys announced the retirement of its billionaire chairman, N.R. Narayana Murthy, who will step down in August, and said current chief executive, S. Gopalakrishnan, will become co-chairman.
The board also said South Dakota Shibulal, a founder of the company and currently chief operating officer, will become the new chief executive.
“Infosys has been losing the habit of out-performing on expectations,” said Tejas Doshi at Sushil Finance in Mumbai. The “last two quarters, there were expectations of out-performance, but they were not able to deliver. What you can conclude is that things are just as they were in the second half of last year. There is no major improvement.”
Infosys posted a 15.4 percent rise in fiscal first quarter profit, but was hurt as wage hikes crimped margins amid intense competition from rivals such as IBM and Tata Consultancy.
Infosys executives on Tuesday said a growth rate of 18 to 20 percent was not enough to help the company absorb the wage increases of more than 10 percent.
“There is one negative that the full-year dollar revenue guidance has not been increased,” said Rohit Anand, an analyst at PINC Research. “The major concern is demand at this point of time. So I think the key number is the full-year outlook.”
Infosys shares were down 5 percent at 2,775.05 rupees by 0520 GMT, after having fallen as much as nearly 6 percent to their lowest level in more than two weeks in a Mumbai market that was down about 1 percent.
Shares in rival Tata Consultancy were down 1.8 percent and Wipro dropped 2.7 percent.
“The market was definitely expecting the revenue guidance would be improved,” said K.K. Mital, head of portfolio management at Globe Capital in New Delhi, referring to Infosys’ earnings.
Mital did add that “there is no downside risk as far as the business is concerned” and said investors should buy the stock.
While Infosys express caution on Tuesday, India’s IT sector is growing due to improved pricing for its services and increased outsourcing by companies looking to cut costs and boost efficiency.
According to research firm Gartner, the global IT market will expand 7.1 percent this year, up from its previous projection of 5.6 percent growth, which bodes well for top Indian exporters like Infosys.
Bangalore-based Infosys also listed on the Nasdaq, said consolidated net profit rose to 17.22 billion rupees ($387 million), from 14.88 billion rupees a year earlier. Revenue rose about 21 percent to 74.85 billion rupees.
A Reuters poll of brokerages had forecast a profit of 17.29 billion rupees on revenue of 75.2 billion rupees for the company, which counts Goldman Sachs, BT Group and BP among its main clients.
Operating margins at Infosys about 3 percent in the quarter ended June and Balakrishnan said the margins were expected to drop 2.5 percent in the fiscal year to March 2012, less than a previous forecast of a 3 percent fall.
