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India's Infosys Unexpectedly Raises Forecast, Shares Surge

Photo: Bloomberg via Getty Images

India's No.2 software services provider Infosys raised its revenue forecast after posting stronger-than-expected quarterly profit, triggering a 15 percent surge in its shares, set for their biggest gain in more than a decade.

Many investors had dumped shares in the company after a string of disappointing quarters eroded Infosys' reputation as the sector bellwether, putting pressure on CEO S.D. Shibulal to win more deals and make the firm more profitable.

"We continue to gain confidence from a strong pipeline of large deals," Shibulal said in a statement on Friday. "We remain cautiously optimistic about the January-March quarter."

The Bangalore-based company unexpectedly raised its sales forecast for the year ending March 31 to at least $7.45 billion, including $104 million in additional revenue following its acquisition of Switzerland-based consultancy Lodestone Holdings.

That would be a rise of 6.6 percent from a year earlier, compared with a previous forecast for a 5 percent increase.

New deals, including 13 in Europe, helped boost Infosys' revenue. Spending on IT services by capital markets clients such as investment banks and brokerages has also improved, Ashok Vemury, head of Americas and manufacturing, told reporters in Bangalore after the earnings announcement.

Clients that have signed big contracts with Infosys, including Harley-Davidson, also accelerated spending during the quarter, he said.

However, some analysts said it was still too early to predict a recovery for the company.

"We are positively surprised by Infosys' performance, and need to study the durability of Infosys' comeback," JPMorgan said in a research note.

Infosys, for years an investor favorite for exceeding its targets, stopped providing quarterly guidance in July. It now provides only an annual revenue forecast.

(Read More: Planin Place for Struggling Infosys, but No QuickReturns)

Analysts had expected Infosys to trim its annual sales growth to as low as 3.3 percent after the company warned last month that U.S. clients had cut back on projects and delayed signing big deals.

"The market was slightly predatory, given that the last two times the company has disappointed, but this time the organic guidance is better ... which I think will be taken positively," said Rikesh Parikh, vice president for markets strategy and equities at Motilal Oswal Securities in Mumbai.

Profit Beats Estimates

Infosys, whose customers include Bank of America and BT Group, said profit for the three months ended Dec. 31 was 23.69 billion rupees ($434 million) versus 23.7 billion rupees a year earlier. That compares with the average estimate of 21 billion rupees in a poll of 16 analysts, according to Thomson Reuters.

In October-December, Infosys said revenue rose 12 percent to 104.24 billion rupees from 93 billion a year earlier. That compares with analyst estimates of 96.8 billion rupees. The firm added 53 clients during the quarter, the strongest pace of additions in at least five years.

With about 60 percent of its business in the United States, Infosys is vulnerable to swings in U.S. corporate sentiment and has been hit hard by project deferrals. The company is also particularly exposed to discretionary spending in the financial sector. Its premium pricing has also put off some customers.

Shares in Infosys, valued at about $28 billion, rose 15 percent after the earnings report, headed for their biggest gain since April 2001. The broader index advanced 0.4 percent and the sector index climbed 7.4 percent.

In 2012, shares in Infosys slumped 16.2 percent, under performing those of larger rival Tata Consultancy Services, which rose 8.2 percent.

Tata Consultancy is expected to report a profit gain of about 12 percent in the quarter, according to Thomson Reuters data. India's top software exporter, part of the $100 billion Tata Group, will report its earnings on Monday.

Wipro, the country's No.3 software services provider, may report a quarterly profit gain of 6.7 percent, analysts said. The company, which is restructuring its non-information technology businesses and focusing exclusively on IT, will announce its earnings on Jan. 18.

Fourth-ranked HCL Technologies is expected to report a 43.8 percent jump in quarterly profit on Jan. 17.

India's $100 billion-a-year IT and back-office outsourcing sector earns about three-quarters of its revenues from customers in the United States and Europe, and faces intense competition from global rivals including IBM, Accenture and Cap Gemini.