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Last updated: April 14, 2005 4:34 pm

Infosys customers distracted by US legislation

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Infosys Technologies warned on Thursday that its next two quarters would be flat as its Wall Street customers adjusted to new compliance rules related to US legislation introduced to curb corporate scandals.

But the Indian technology services company remained confident of achieving $2bn in full-year revenues in the year to March 31 2006.

The Bangalore-based company said many large customers were delaying IT-related decisions as they considered what new systems might be required to meet new financial reporting obligations under US Sarbanes-Oxley legislation.

Infosys' Wall Street clients include Citigroup, Bank of America and American Express.

The warning came as Infosys reported revenues for the year to March 2005 of Rs71.3bn ($1.6bn), up 47 per cent, and earnings 52 per cent higher at Rs18.9bn.

The sale of a US asset lifted net profit by Rs451.9m. After the exceptional item, earnings per share were Rs70.48, up 44 per cent.

The performance, in line with market expectations, provided further evidence that companies in markets such as the US and Europe are continuing to outsource an increasing amount of their software maintenance and business processes to India, where costs are at least a third lower.

Nandan Nilekani, chief executive, said many large financial services customers had been ?distracted? by the introduction of tougher rules on disclosure but ?this temporary slowdown would reverse late in the year?.

Indian IT companies are expected to benefit from Sarbanes-Oxley, which will force banks to adopt more technology-based processes to spot potential black spots in their accounts.

That should help Infosys to breach the $2bn sales mark this year. Infosys said sales would improve by 24.7-26.6 per cent and earnings by between 23 per cent and 24.9 per cent in 2006.

The company pointed out that although global IT spending had been flat for three years, Indian IT companies had been able to sustain their strong growth on the back of the global outsourcing trend.

Infosys added 37 new customers in the quarter ending March 31, and an additional 1,521 staff, taking to 11,116 the total number of new staff hired last year. It said it expected to recruit another 12,000 in 2005-06.

?That's smart in an environment of stable prices, huge hires, big salary rises and new and loss-making businesses [in China and consulting],? said Ganesh Duvvuri, IT analyst at Motilal Oswal Securities in Mumbai.

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