Monday, April 11, 2011

Infosys Technologies Ltd. (NASDAQ: INFY): Q4 Earnings Preview 2011

Infosys Technologies Ltd. (NASDAQ: INFY), India's second-largest software company, is scheduled to release its fiscal fourth-quarter financial results before the opening bell on Friday, April 15, 2011. Analysts, on average, expect the company to report earnings of 70 cents per share on revenue of $1.63 billion. In the year ago quarter, the company reported earnings of 61 cents per share on revenue of $1.30 billion.

Infosys Technologies Limited provides information technology (IT) and consulting services worldwide. The Company provides end-to-end business solutions.

In the preceding third quarter, the Bangalore, India-based company's net income was $397 million, or 69 cents per  American Depositary Share, compared to $334 million, or 59 cents per ADS, in the year-ago quarter. Revenue grew to $1.585 billion from $1.232 billion. Analysts, on average, expected the company to report earnings of 66 cents per share on revenue of $1.54 billion. The company reported a net addition of 5,311 employees in the third quarter and 40 clients were added during the period.

At its last earnings call in January, the company said that it expects earnings per ADS in the range of $0.69 to $0.70, and revenues of $1.601 billion to $1.617 billion. The company also lifted its fiscal 2001 outlook. Earnings per ADS are now estimated to range between $2.60 and $2.61. Fiscal year revenues are projected to be $6.04 billion to $6.06 billion. The previous outlook was for earnings per ADS to be in the range of $2.54 to $2.58 and revenues of $5.95 billion to $6.00 billion.

According to media reports, Infosys Technologies is likely to announce a major organizational rejig along with naming a new chairman and CEO shortly. 

Infosys is also searching for acquisitions to add companies that specialise in providing healthcare and government services. A team is scanning "day-in and day-out" for such technology companies and is looking for targets in non English-speaking countries, chairman NR Narayana Murthy said last month. The team has examined about 150 potential purchases , Murthy said. Infosys plans on spending up to $200 million on acquisitions that will help it secure projects in the government sector, a sector that has been drawing a lot of business in the past few months. The company had $3.6 billion of cash, near cash and short-term investments at the end of the fiscal year in March 2010. 

It appears that the growth momentum is gradually picking up for offshore IT outsourcing, thanks to a rebound in demand for discretionary services.The Indian offshore IT services market has seen tremendous growth over the past five years, and there are reasons to believe that this growth will continue in the foreseeable future. A vast pool of talented labor, an English-proficient population and a competitive cost structure characterize this market. Additionally, the Indian offshore services market only accounts for a small percentage of worldwide IT services spending, leaving room for Infosys to grow.

The company continues to focus on large transformational engagements, especially through its consulting and enterprise solutions offerings. The clients have been impressed by its engineering services. The pricing environment has stabilized and there is increasing demand for its system integration services due to Mergers & Acquisition.

However, the economic environment, appreciating rupee, pricing pressure and decreased utilization rates could negatively impact revenues and operating results. The company's revenues are highly dependent on clients primarily located in the United States and Europe, as well as on clients concentrated in certain industries. The soft economy or factors that impact the economic health of the United States, Europe or these industries may affect its business.

The company's stock currently trades at a forward P/E (fye Mar 31, 2012) of 23.32 and PEG Ratio (5 yr expected) of 1.51. In terms of stock performance, Infosys shares have gained nearly 22% over the past year.

Full Disclosure: None.
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