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Infosys Posts 35% Rise in First-Quarter Profit, But Rupee a Worry

India's Infosys Technologies beat expectations with a 35% rise in quarterly profit on Wednesday boosted by tax gains, but said a rising rupee was squeezing margins.

Net profit rose 10.79 billion rupees ($267 million) in the June quarter, including 510 million rupees tax writeback, from 8 billion rupees a year earlier. A Reuters poll had forecast a net profit of 9.7 billion rupees.

Compared with the March quarter, earnings fell 5.7% as a stronger rupee weighed. Infosys plans to hire 26,000 people in the year to March 2008, up from about 23,000 it had forecast in April, the company said.

It cut full-year per share earnings forecast to 78.20-79 rupees, from 80.29-81.58 estimated in April assuming the rupee-dollar exchange rate at 43.10 rupees. The current forecast factors in the exchange rate at 40.58 rupees.

Nasdaq-listed Infosys , India's number-two software services exporter, gets about 60% of its revenue from the U.S. lowered its full-year earnings in rupee terms but revised upwards in dollars.

India's booming software services companies have been winning large outsourcing contracts from overseas clients like Nortel and Qantas, but the strengthening rupee is a worry.

"The sharp appreciation of the rupee against all major currencies impacted our operating margins during the quarter," said Chief Financial Officer V. Balakrishnan.

Infosys, whose clients include ABN Amro, Goldman Sachs and Airbus, faces a problem from the rupee. The currency climbed 6.8% to 40.72 in the June quarter and analysts at Westpac Bank expect it to rally further to 39.4 against U.S. dollar by the end of the year.

Every one percent rise in the value of the rupee against the dollar shaves 30-50 basis points from operating margins of Indian software services exporters.

Wages in the sector are also rising by about 10% to 15% a year, compared with 2% - 6% in the West, as companies try to retain staff from being poached by rivals such as IBM and Accenture.

Last week, an industry body forecast software services exports would rise 26% to 29% to around $40 billion in the fiscal year to March 2008, slower than a 33% rise in 2006/07.

Shares in Infosys, which develops applications, designs supply chains and offers back-office services, fell 4% in April-June, underperforming a 0.6% drop in the sector index and a 12% rise in the main index.

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