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Last updated: October 11, 2005 10:47 pm

Infosys expects more big deals

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More European banks could take a lead from ABN Amro and award large offshore outsourcing deals to Indian technology services companies, Infosys Technologies said as it the Bangalore- company raised its forecast for full-year earnings.

India’s second-largest tech company said the Dutch bank’s  $2.2bn contract given last month to five service providers – including Infosys and Tata Consultancy Services, India’s biggest IT vendor – would exert “peer pressure” on other European banks as they drew up IT outsourcing strategies.

The rosy outlook accompanied better-than-expected earnings in the second quarter to September at Infosys. TCS on Tuesday also reported strong results for its second quarter, including a $250m outsourcing deal from a Tata group company to implement alongside the similar-sized ABN Amro contract.

“There are many big deals out there which will be available to companies like TCS,” said S. Ramadorai, TCS’s chief executive. 

Analysts said the large volume-led growth, and the mega-sized contracts, reflected a growing disparity between a small elite and the rest of the $17bn Indian industry.

TCS’s revenues for the quarter were Rs29.83bn ($682m), up 22 per cent year on year, while net profit rose 21 per cent to Rs6.94bn.

Infosys’s net profit jumped 36 per cent to Rs6.06bn. Revenue grew 31 per cent to Rs22.94bn. The sales growth was achieved in spite of a sharp 7 per cent decline in the contribution of its largest single customer and a 15 per cent fall in sales at its banking products unit.

Earnings were helped by strong volumes and weakness in the rupee against the dollar. The rupee is trading at a 10-month low against the US currency, boosting the income of software exporters whose revenues are mainly priced in dollars.

The US generates two-thirds of India’s software earnings.

Infosys raised its full-year guidance for earnings per share by about 30 per cent to Rs89-Rs89.40. In the first quarter, it had forecast eps EPS of Rs84.7-Rs86. TCS does not give forward guidance figures.

“The results are strong but big areas of IT spending are emerging such as infrastructure, testing and consulting, which will be growth drivers for these companies and the industry,” said Shekhar Singh, analyst at ICICI Securities in Mumbai.

Nandan Nilekani, Infosys chief executive, described the performance as “very strong – volume growth is back on track.”

One proxy for this was the 8,026 [gross] employees recruited, the largest in any quarter, taking staffing to 46,000, about a third of that of rival Accenture.

TCS added a gross 4,224 new employees, taking its staff strength to 50,000.

Many of Infosys’ new recruits may be in China, where last month the scale of its ambitions emerged with the disclosure that it was building a new software development centre in Hangzhou that can accommodate 6,000 software engineers.

TCS added 74 new customers and Infosys 34 in the quarter, and both say the impact of the largest new client, ABN Amro, would be felt from the third and fourth quarters.

Infosys’ share price finished 2.34 per cent higher in a flat market. TCS reported after the share trading closed.

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