Infosys CEO sees Q3 sales close to low end of outlook

BANGALORE Wed Nov 23, 2011 2:34am EST

BANGALORE (Reuters) - Infosys Ltd (INFY.NS) expects its third-quarter revenue growth closer to the lower end of its forecast as customers delay decisions on large contracts, its chief executive said.

The Bangalore-based company, a pioneer in India's $76 billion IT sector, has grown rapidly by employing thousands of engineers in low-cost Indian centers but is seeing its pace of growth slowing amid a sputtering U.S. economy and the European debt crisis.

"Economic uncertainties are slowing down decisions," S.D. Shibulal, also a co-founder of Infosys, said at the Reuters India Investment Summit in Bangalore.

"We're clearly seeing it. The slowness has increased in the last month or month and a half," he said.

Infosys had forecast quarter-on-quarter revenue growth of 3.2-4.5 percent for the October-December period.

"We're also seeing higher scrutiny of larger contracts ... larger contracts are difficult to come by," Shibulal said, adding that consumer and customer confidence was very low.

India's No. 2 software services exporter is facing severe competition from rivals Tata Consultancy Services (TCS.NS), Cognizant Technology (CTSH.O), IBM (IBM.N) and Accenture (ACN.N) in clinching large deals.

Earlier this month, India's top software services exporter TCS unveiled its second-largest order of $2.2 billion from UK-based pension provider, Friends Life, a unit of insurer Resolution RSL.L.

MARGIN ASPIRATIONS

Infosys and TCS have long maintained operating margins in the high twenties. But stiff competition from global players such as IBM and Accenture has put margins under pressure.

"Our aspiration is to continue to have higher margins, and I don't see any reason to compromise on that," Shibulal said, adding that pricing was stable and he was not seeing project cancellations.

Margins at Infosys, which was incorporated in 1981 as Infosys Consultants Pvt Ltd, could gain from a steep decline in the Indian rupee, which makes exports more competitive.

"One percent depreciation in rupee (leads to) a net inflow of some 30 basis points in margins," Shibulal said.

The Indian rupee fell to an all-time low on Tuesday, as oil refiners and other companies scrambled to buy dollars, with the currency looking increasingly vulnerable to a swelling current account deficit and fears over the global economy and euro zone.

"Margin wise, rupee is the savior. If we look back at 2008-09, when the whole top-line slid, all these companies' margins were good," Standard Chartered analyst Pankaj Kapoor earlier told Reuters.

GROWTH PLANS

Shibulal reiterated that Infosys, which expects $7.0-$7.2 billion in revenue this fiscal year, would be willing to spend up to 10 percent of that on acquisitions.

"If you look over the last many years, we have talked about acquisition in consulting area, predominantly. Today, we have expanded that to consider products and platforms," he said.

The company also backed its full-year dollar revenue growth view of 17.1-19.1 percent.

Infosys' shares, which have lost about a fifth of their value this year, fell as much as 4 percent on Wednesday. The broader Mumbai market .NSEI was down 3 percent.

(Reporting by Rajarshi Basu, Himank Sharma, Krishna N Das and Aftab Ahmed in Bangalore; Editing by Saumyadeb Chakrabarty, Sriraj Kalluvila)

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