Infosys hikes 2018 revenue forecast despite stagnant IT spending

Asia’s second-largest outsourcer of IT services, Infosys, forecast a 7.1 to 9.1 per cent climb in revenue for the year ending March 2018 on a U.S. dollar basis. That beat analyst estimates and its own previous outlook, both of which projected growth of 6.1 to 8.1 per cent.

By: Bloomberg | Updated: July 14, 2017 10:51 am
Infosys, Infosys Q1 profit, Infosys revenue outlook, IT layoffs The logo of Infosys is pictured inside the company’s headquarters in Bengaluru, India, April 13, 2017. REUTERS, File photo

Infosys Ltd. raised its annual revenue outlook after eking out a 1 per cent rise in quarterly net income, as newer digital services helped it bag contracts despite shrinking client budgets. Asia’s second-largest outsourcer of IT services forecast a 7.1 to 9.1 per cent climb in revenue for the year ending March 2018 on a U.S. dollar basis. That beat analyst estimates and its own previous outlook, both of which projected growth of 6.1 to 8.1 per cent.

Infosys should be able to perform strongly despite a volatile macroeconomic environment, said Vaibhav Dhasmana, an analyst at Jefferies India. A stabilizing consulting business and strong uptick in spending in sectors such as manufacturing and financial services could bolster revenue, Dhasmana wrote in a note last month. Also read: Infosys reports net profit of Rs 3483 crore in Q1, revenue from operations rises 1.8 per cent. Click here.

Infosys, a favorite sector pick of many investors, has been battered this year by a series of events including a clash between its board and high-profile founders over corporate governance. Former chairman Narayana Murthy has criticized firings in the industry despite large pay hikes for senior executives such as Chief Operating Officer Pravin Rao. In a June filing, Infosys warned that activist shareholders could interfere with its ability to execute on strategic priorities and disrupt operations, but denied it was referring to its co-founders. None of them showed up at an annual shareholders’ meeting last month.

It reported earnings on Friday marginally ahead of market projections just a day after larger rival Tata Consultancy Services Ltd. announced a bigger-than-expected 6 per cent fall in net income. Infosys posted net income of 34.8 billion rupees ($540 million) in the three months ended June, compared with the 34.3 billion rupee average of estimates compiled by Bloomberg. On a constant currency basis, it’s sticking with a prediction for 6.5 to 8.5 per cent revenue growth in fiscal 2018.

India’s $154-billion information technology industry is grappling with increasing automation and a changing technology landscape that’s pressuring margins and triggering job cuts within companies including Infosys, Wipro Ltd. and Tech Mahindra Ltd. Infosys said at its shareholders meeting that over 11,000 jobs had been “released” due to automation.

Researcher Gartner Inc. forecast that global IT spending will total $3.5 trillion in 2017, a 2.4 per cent increase from last year.

In the vital U.S. market, Infosys has been challenged by the Trump administration’s tightened rules on H-1B skilled worker visas, of which Infosys leads in usage among peers. Amid the restrictions, the company announced it would hire 10,000 workers in the U.S. over the next two years. That is likely to raise costs since salaries for skilled engineers in India are far lower.

Infosys’ shares climbed more than 3 per cent in early Mumbai trade, and the stock has fallen 3 per cent this year as of Thursday’s close.

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