After a gloomy year, Infosys results announced on Friday indicate better times for India’s information technology industry. Beating its target (guidance), the IT bellwether has reported a 7.5% increase in net profit in the second quarter of the financial year 2010 and revised its dollar revenue guidance to $4.62 billion from $4.52 billion earlier. The new deals during the quarter and the expected lateral hiring of 2,000 employees are strong indicators that the pricing environment is stabilising.
Commenting on the Infosys results in a report, Nimish Joshi, an analyst at research firm CLSA, says, ?In our view, the December 2009 quarter will be better than September 2009 quarter in quarter-on-quarter growth terms and the build-up of deal momentum indicates that the March 2010 quarter will be better than December 2009 quarter with seasonality kicking in thereafter on an improving demand scenario. We expect June 2010 to be better than March 2010 and September 2010 to be better than June 2010. In effect, a multi-quarter topline improvement for Infosys lies ahead even as concerns on margins are irrelevant, given the mid-60s utilisation rate Infosys is running right now.?
As per various analyst reports during the quarter, Infosys witnessed an increase in the number of deals coming from the banking, financial services and insurance sectors. Clients such as Bank of America, RBS, Goldman Sachs and Barclays did show indications of business ramp up. British Telecom has been Infosys’ top customer for two years; however analysts say that its quarterly revenue run rate is down to $50 million from a peak of $117million. Two more quarters of declines from BT is expected.
On the upside, Infosys is witnessing new deal flows from France Telecom, Vodafone, AT&T and Telstra, which are expected to mitigate the damage from BT.
This quarter has also reversed the trend of six consecutive quarters of decline in lateral hiring, and a further uptick is expected in the December quarter. Some of this can be attributed to hiring of local senior software engineers/project managers in onsite locations. Fifty of them have been hired in the quarter with a target of 1,000 over the next three-four quarters. Infosys asserted that salary cost for local hires abroad is comparable to Indians deputed to go onsite and there is unlikely to be any margin impact. While lateral hiring in India is inching up, it is being restricted to niche skills. Lateral hiring is still in trickles rather than bursts, but analysts see this as a sign of greater confidence in the order-book.
A recent report on the Indian IT services sector by Religare Hichens Harrison points out that the industry is expected to see $1 billion worth of deals in Q4 FY10 and this is expected to impact in FY2011. The sector is witnessing opening up of the banking, financial services and insurance sector with deals in the range of less than $50 million.