Infosys beats expectations, but slips

NetScribes/Ganesh Ramamoorthy

Infy at Half-time

• Four new strategic investments: Alpha Thinx of Austria, a player in the mobile Internet segment; Asia Net Media of British Virgin Islands, which plans to take offline brands online; CiDRA of the US, a developer of photonic devices for wavelength management; M-Commerce Ventures of Singapore, a venture fund.
• Twenty-seven new clients signed up in last quarter, including the likes of Microsoft, Eastman Chemicals and ABB Alstom.
• E-commerce revenues have zoomed to account for 31.4% of income this quarter, up from a meagre 1.3% nine quarters ago.
• Revenues from Europe have become more important in this quarter, accounting for 17.4% of income, compared to 14.2% a year ago.
• Marketing offices opened in Sydney and Hong Kong. Employed 1,480 new employees in Q2, which partly contributed to a 112.8% increase in staff cost over the previous corresponding quarter.

As is its wont, Infy beat analysts expectations by announcing a 134 per cent rise in net profits for the second quarter of 2000-01. This time, though, it is not just about topline or bottomline growth. In what could possibly be a new direction, Infosys has announced four new strategic investments that could propel its future growth.

Infy has picked up stakes in companies as diverse as Austria-based Alpha Thinx Mobile Phone Services to get a toehold in the new wireless internet space and the US-based CiDRA Corp, which develops photonic devices for high precision wavelength management and control for next generation optical networks.

A move into the bandwidth market? But of course. Taking it forward, Infy has also invested $1.5 million in British Virgin Island-based Asia Net Media BVI Ltd to leverage under-exploited off-line media and entertainment brands by delivering them through online channels and to establish synergistic network of companies in this space. Infy has also parked Singapore $1 million in M-Commerce Ventures, a new venture capital fund.

If that's not enough to power investor enthusiasm, consider Infy's financial performance this quarter. At Rs 1.54 billion, the net profit figure is ahead of analysts' estimate of a 100-110 per cent rise. The company had posted a net of Rs 657.1 million in Q2 1999 - 2000.

Despite the strong showing, the Infy scrip actually fell by Rs 88 in afternoon trading at the BSE. However, it could be more a victim of the general bearish mood on the BSE as the Sensex dipped below the 4,000 mark. At 15:10 IST, the scrip was trading at Rs 7,310 against its previous close of Rs 7,398.55.

"The results have already been factored into the price. So the fall in the scrip only indicates profit-booking by operators who had accumulated the scrip in anticipation of better results," says an analyst with a Mumbai-based securities firm. In early trades, the scrip had, in fact, surged by about Rs 190.35 to touch a high of Rs 7,580 on the BSE.

For quarter ended September 30, 2000, Infy's total income has grown 113.73 per cent to Rs 4.66 billion as compared to Rs 2.17 billion during Q2 1999-2000 and by 25.64 per cent compared to Q1 2000-2001. Other income is up 104.28 per cent mainly due to earnings from exchange differences, which account for 2.08 per cent of the total revenues (Rs 96.8 million) during the quarter.

Infosys Profit & Loss account (Rs mn)

	Sep 2000 quarter	Sep 1999 quarter
Income from software - Exports	4412.6	2050.7
Income from software - Domestic	48.4	32.3
Total income	4656.7	2178.8
Total expenses	2696.7	1319.5
Operating profit (PBIDT)	1960	859.3
Net profit (after extraordinary item)	1540.1	657.1

Like in the first quarter this fiscal, Infy has been on a hiring spree, adding 1,480 people to its rolls. Infy's total staff of 7,925 allows it to maintain a higher bench strength, which also means new recruits can be quickly deployed on live projects. For instance, the utilisation rates, excluding trainees, stood at 80.5 per cent compared to 85.6 per cent for the quarter ended March 31,2000.

Infy's staff costs, at Rs 1.67 billion, have shot up by about 113 per cent as compared to Q2 2000. "Such a steep rise in staff costs will have an impact on the margins, though it won't be much," says an analyst with a Mumbai-based securities firm.

Revenues from software are at 97.3 per cent of the total compared to 97.6 per cent in the previous quarter, while revenues from products are marginally up from 2.4 per cent in the last quarter to 2.7 per cent.

Much of the increased revenues have come from software development, with the US and European markets contributing 75 per cent and 18.1 per cent, respectively, to the overall revenues during the quarter. The increasing contribution of the US and European markets could indicate Infy's intention to enhance its presence in these regions.

Infy's client list boasts of 27 new clients this quarter, taking the total number of clients to 240.

Technical analysts expect the downtrend to continue for a couple of sessions more as the scrip is facing resistance from the 55-day SMA, which is currently placed at Rs 7,622.58. In the medium term, analysts expect the scrip to dip to Rs 7,160, which is expected to be a trend decider for now. A closing below this support level could see the scrip slip further, barring minor support at the Rs 7,080 level, say analysts.

Weekly oscillators such as the MACD, RMI, Stochastic and RSI are also in the `sell' mode, indicating that Infosys would have to do something spectacular to change the current scenario. On the other hand, a closing above Rs 7,712 would see the scrip move beyond Rs 8,000.

Money

Market Impact

Tell us what you think of this report