New Delhi: IT major Infosys began quarter one of financial year 2007 with a bang and upped its earning per share (EPS) guidance from Rs 115 to Rs 124 for this year, an increase of 9.1 per cent.
Analysts consider this fairly aggressive and considering favourable factors like a depreciating rupee against the Dollar, Euro and Pound, feel that the sector has the potential to surprise the street this quarter.
Infosys on July 12 reported net profit of Rs 794 crore for Q1FY07 from Rs 673 crore in the previous quarter. Its revenue was at Rs 3,015 crore from Rs 2,624 crore on a (qauter over quarter) QoQ basis.
While analysts expected Infosys’ revenues to grow by 10-11 per cent and earnings by 6-7 per cent, India’s second biggest exporter surprised the market with a revenue growth of 15 per cent and PAT growth of 19 per cent on a quarterly basis.
It has also revised its EPS guidance by 9.1 per cent, which is considered fairly aggressive by Infosys’ standards.
This, in a sense, beckons well for the entire IT sector. "If a company of Infosys’ magnitude guides this aggressively indicates quite a bit of action in this sector," says Sumeet Rohra of Antique Stock Broking.
Nandan Nilekani, MD and CEO, Infosys, admitted that there has been an improvement in business performance and the outlook is looking better for the IT sector.
Allaying apprehensions of a possible slowdown in the US economy hurting Infosys in particular and the sector in general, Nilekani said, "At the business level, when you talk to business leaders they are extremely buoyant and bullish about the future."
He said that their business model acts as a hedge against such dampeners.
Software firms in India have business models that protect them against a possible slowdown as foreign firms outsource mission-critical work to Indian software vendors due to their cost advantage in leaner periods.
This helps these firms cut costs and any increase in IT spending flows directly to these firms as well, notes Sumeet Rohra about the natural hedge provided by Indian software vendors.
Ambareesh Baliga of Karvy Stock Broking, while admitting that other software firms could also surpass street expectation adds, "Other IT stocks could also beat street expectations but not to the tune of what Infosys reported. It will be a bit difficult for others to beat the street expectations as much as Infosys did."
According to him post Infosys results the expectations from the IT sector have also started moving up. "One should not start buying IT stocks immediately on account of earnings expectations for Q1FY07 in IT stocks. One can, however, pick up good IT stocks for the longer term," is his advise to the investors.
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