Infosys shares slump nearly 9% after Narayana Murthy's remarks on revenue growth

Mar 13 2014, 16:11 IST
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Infosys had suffered a string of disappointing earnings results after focusing on proprietary software at the expense of bread-and-butter BPO contracts. Infosys had suffered a string of disappointing earnings results after focusing on proprietary software at the expense of bread-and-butter BPO contracts.
SummaryInfosys chairman Narayana Murthy has said he is 'not happy' with performance over past 2 years.

Shares of India's Infosys Ltd on Thursday fell as much as 9 per cent after Chairman Narayana Murthy said revenue for the fiscal year ending March could grow at the lower end of the IT outsourcing company's 11.5 to 12 percent projection.

Infosys founder Murthy, brought back in June to revive the company's fortunes, also forecast an operating margin of 23.5 per cent, down from 29.5 percent in the year to March 2011 before his return.

India's second-biggest IT outsourcer by revenue after

Tata Consultancy Services (TCS) had suffered a string of disappointing earnings results after focusing on proprietary software at the expense of bread-and-butter outsourcing contracts.

Murthy has sought to refocus on big-ticket contracts and build a "predictable earnings model" within three years of re-appointment. Even so, the company still struggles to boost revenue from its software platforms and high-margin consulting business.

"We are not very happy with our performance over the last two years," Murthy said on Wednesday in an investor presentation organised by British bank Barclays Plc in Bangalore.

In January, Infosys raised its revenue growth outlook range to 11.5 to 12 per cent from 9 to 10 per cent forecast in October, citing expectations for increased demand for IT outsourcing.

On Wednesday, Murthy said without elaborating that growth was "much more like" 11.5 percent.

Infosys shares subsequently fell on Thursday, and were down 8.54% at closing. The benchmark NSE index was 0.4 percent higher.

Murthy's comment "came as a negative surprise to the street. We have been cautious as the guidance...was not very spectacular," said Dipen Shah, head of Kotak Securities' private client group.

Infosys shares have risen 52 percent since Murthy's June 1 return, hitting a record on March 6. In comparison, shares of Tata Consultancy have risen 45 percent.

Speaking at the same event on Wednesday, Chief Executive SD Shibulal said of particular concern was reduced spending on personal computers by high tech enterprises, and by retail customers pressured by holiday discount costs.

Infosys also suffered unanticipated cancellations and some projects were slowed down because of a lack of workers with relevant skills, Shibulal said.

"While we saw some initial results of our efforts in the last few quarters, we expect near-term performance to be choppy," he said.

"Many of the factors that have led to the recent slowdown will continue to impact our client spending, at least in the initial parts" of the fiscal year beginning April.

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