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Infosys Third-Quarter Profit Rises 25%, Beats Forecast

Infosys Technologies, India's No.2 software services exporter, beat forecasts with a 25.2 percent rise in quarterly profit, helped by strong demand from Europe and a tax refund.

The company said the business climate remains challenging, but it sees several growth opportunities.

"We believe the IT spending environment will be favorable to large offshore players like us, even though the macro environment is challenging," Ashok Vemuri, head of banking and capital markets at Infosys, said in a statement on Friday.

Indian outsourcers that offer Western firms technology and back-office services are expanding into Europe and Asia-Pacific to cut their dependence on an uncertain U.S. market that generates more than half their revenue.

Nasdaq-listed Infosys said October-December net profit rose to 12.31 billion rupees (US$313.23 million) from 9.83 billion rupees a year earlier. Net profit was boosted by a tax reversal of 500 million rupees.

Revenue grew 17 percent to 42.71 billion rupees from 36.55 billion rupees a year ago.

A Reuters poll of 13 brokers had predicted Bangalore-based Infosys, whose clients include ABN AMRO and Goldman Sachs, would post net profit of 11.77 billion rupees on revenue of 43.26 billion rupees.

Competent English-speaking and relatively cheaper wages have helped India's services firms grab outsourcing jobs from western clients looking to cut costs, but a strong rupee, rising pay and a slowing U.S. economy are big worries.

Margins at software services firms, which get more than three quarters of their sales from overseas, have been badly dented by a rupee that climbed more than 12 percent last year.

Every unhedged 1 percent rise in the rupee squeezes services firms' margins by 30-50 basis points, analysts say.

Although firms such as Infosys, top exporter Tata Consultancy Services and third-ranked Wipro have increased currency hedges, margins were further squeezed as there were fewer working days in October-December.

Infosys, which develops applications, designs supply chains and offers back-office services, was the worst performing stock in India's benchmark BSE index last year, falling 21 percent, while the main index rose 47 percent.

Infosys shares lost 6.8 percent in October-December, compared with a 2.1 percent drop in the sector index and a 17 percent rise in the BSE index, as investors fretted about the impact of a slowing U.S. economy.

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