Infosys suffers despite profit rise

Infosys relies heavily on North American sales

A bumper autumn for India's leading software firm Infosys Technologies lifted net profits by 125%.

There are no fireworks in the results. Expenses have risen sharply and it seems the margins are under pressure

Arun Kejriwal
Nikko Stock Brokers

The group netted a neat 1.66bn rupees ($35.63m, £23.79m) during the third quarter of last year, more than twice as much as it made during the same period in 1999.

Yet market players were disappointed.

"(There are) no fireworks in the results. Expenses have risen sharply and it seems the margins are under pressure," said Nikko Stock Brokers chief dealer Arun Kejriwal.

Soon after 0430 GMT on Tuesday, the price of the company's Bombay listed shares had fallen 72 rupees at 5,935.

Hard to please

The problem, seen from the investors' point of view, is that Infosys' profits rose more slowly than its income, which was up 136%, to 5.52bn rupees.

Infosys chairman Narayana Murthy has pushed through strong growth....

Stock brokers had expected the sales increase to be smaller, "only" 116%.

At the same time, they had predicted that profits would have increased even more than they actually did.

A survey of 13 brokerages revealed that they had anticipated a 130% rise in net profits, to 1.70bn rupees.

Dot.com losses

Infosys' net results were hit by a 130.8m rupees write-off linked to its $3m investment in a failed US dot.com start-up, the e-commerce firm EC Cubed.

Some analysts saw the write-off as a mitigating factor.

"If you exclude the provisions, Infosys has done better than expected. I had not anticipated the provision," said Pranav Securities analyst Priya Rohira.

US dependency

Infosys' customers include several well known global corporations.

... yet, Bombay stock brokers say investors are downbeat

They include the credit card firm Visa, the sportswear company Reebook and the internet hardware maker Cisco Systems.

Eastman Chemicals, retail clothing chain JC Penney and aircraft builder Boeing are also on the client list.

More than three-quarters of Infosys' revenues come from North America.

Consequently, many analysts have raised concerns about the company's growth potential, given the slowdown in the US economy.

Those fears, as well as the squeeze on the software firm's margins, have pushed its share price almost 30% lower in six months - despite steadily rising sales and profits over the same period.

Infosys was the first Indian firm to be listed on the US technology-heavy stock exchange, the Nasdaq.