Infosys' refocus on big-ticket contracts starts to pay off

Reuters

* Tightens FY revenue growth target to 9-10 pct from 6-10pct

* Shares end 4.7 pct higher after touching highest sinceApril 2011

* Company cites sharper focus on large contracts

By Harichandan Arakali

BANGALORE, Oct 11 (Reuters) - Infosys Ltd's refocus on big-ticket contracts since the return of its founderhas begun to pay off as India's No. 2 software services exportercrossed $2 billion in quarterly sales for the first time andpushed up its revenue outlook

Still, a one-off provision left Infosys reporting profitthat missed analyst estimates in its first full-quarter earningssince Narayana Murthy came out of retirement, during which timethe industry bellwether lost ground to rivals such as TataConsultancy Services.

Infosys shares, which are often highly volatile afterresults statements, on Friday ended up a relatively muted 4.7percent at 3274.50 rupees after touching their highest sinceApril 2011.

Under Executive Chairman Murthy, Infosys is increasinginvestment in sales and doing a better job at winning largeoutsourcing contracts to which it is devoting more seniormanagement attention.

"There's still a lot of work to be done, but they're turningaround," said Equirus Securities Chief Executive Bhavin Shah.

"I think they're seeing deal wins, client traction andrevenue momentum. I'm sure Murthy is spending a lot of energy insort of assuring clients that Infosys means business."

Murthy has said Infosys sacrificed growth in favour ofhigher-margin proprietary software and consulting. Instead, heis refocusing on large, plain-vanilla IT outsourcing contractsthat have long been the industry staple.

Infosys pointed to Australia, its third-biggest market, asevidence of recent success, winning all six of the deals itcompeted for above $75 million in value over the last twoquarters.

Globally, Infosys won five large contracts worth a combined$450 million in the September quarter.

"Our focus on proactively creating large deals has led tosignificantly better pipeline," CEO S.D. Shibulal told analysts.

VISA PROBE BITES

Bangalore-based Infosys recorded consolidated net profit forthe three months to Sept. 30 of 24.07 billion rupees ($391million) compared with 23.69 billion rupees in the same period ayear earlier.

The result missed the 26.26 billion rupees average ofanalyst estimates according to Thomson Reuters I/B/E/S,primarily because it set aside 2.19 billion rupees as it seeks a"civil resolution" to an investigation in the United States overthe past use of temporary employment visas.

Infosys also said it expects its operating margin to besteady at about 23.5 percent if the rupee is stable.

India's IT services industry, which generates most of itsrevenue in U.S. dollars, benefits from rupee weaknessbecause companies earn more rupees for every dollar a clientspends.

Infosys, one of the few Indian companies to give guidance,narrowed the range of its fiscal year revenue growth outlook to9-10 percent from 6-10 percent.

Several analysts called that conservative. The NationalAssociation of Software and Services Companies forecast for thesector is 12-14 percent.

Ambit Capital analyst Ankur Rudra, who has long had a sellrating on the stock, called the guidance "inexplicablyconservative" and "disappointingly low."

"We continue to remain cautious on the pace of the recoveryin demand for offshore IT services and expect industryperformance to be (led) by faster growing peers," such as TCS,U.S.-based Cognizant Technology Solutions Corp and HCLTechnologies Ltd, Rudra wrote in a note.

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