Infosys sees slowdown in getting new contracts

Banglore:Infosys Technologies Ltd, India's No. 2 software services exporter, is seeing a slowdown in getting new outsourcing contracts but has had no large-scale cancellations, its finance head said on Thursday.

The global financial crisis and economic slowdown has hit customers' budgets and put pressure on prices, but has also created buying opportunities for the cash-rich firm, Chief Financial Officer V. Balakrishnan told Reuters in an interview.

"People are very selective in their spending," he said, with companies doing what was critical and putting off other work.

"New project momentum has come down," Balakrishnan said, although Infosys had not seen "large-scale" cancellations despite the tough business environment.

Business growth could pick up in the second half of the 2009/10 fiscal year beginning April 1, he said.

India's large pool of English-speaking engineers and cheaper wages drove an outsourcing boom, but turmoil in global markets and a recession in the United States, which accounts for more than half the sector's revenue, have halted the scorching pace of growth.

Revelations of a massive accounting fraud at Satyam Computer Services Ltd, India's fourth-ranked software services firm, further dented prospects for the export-driven sector, Balakrishnan said.

"There are short-term concerns about Infosys and other software firms' earnings, which may be flat to negative at least for the next six months," said K.K. Mital, head of portfolio management services at Global Capital.

"But these concerns will go off as soon as the global economy stabilises."

Balakrishnan said a weaker rupee, which has fallen about 5.5 percent this year after dropping 19.1 percent in 2008, gave some buffer to profit margins in the current fiscal year. The rupee hit a record low of 52.2 per dollar on Tuesday.

The pricing environment was tough but Infosys was trying to mitigate the impact on earnings by moving more jobs to low-cost centres in India and improving the employee productivity.

"In some long-term relationships, we would have compromised on the prices because we have to reduce the pain points and make it work for the long term," he said.

Last week, Chief Executive Kris Gopalakrishnan said Infosys expected slow IT services business for the foreseeable future as the global economic slump forced clients to delay technology spending, and that the firm was taking cost-control measures.

ACQUISITIONS

Nasdaq-listed Infosys, which gets most of its revenue from the United States, is looking for acquisitions in Germany, France and Japan to boost growth.

Balakrishnan said Infosys, which has cash reserves of about $2 billion, would be interested in buying a technology company with annual revenues under $200 million to tap business opportunities in sectors like energy, utilities and healthcare.

"Most of the assets are reasonably priced in this environment," he said.

Infosys' consulting business unit, which has been a drag on earnings and made a net loss of $2.7 million in the December quarter, was likely to break even during 2009/10, he said.

Balakrishnan said Infosys, which had 103,078 staff at the end of 2008, was not planning major layoffs but poor performers would be asked to leave.

"In the past few years, probably we were more lenient. Now we are stricter on performance," he said. "The bottom 5 percent of the company who (are) not performing well, we may let them go."

Shares in Infosys, whose market value has fallen about 20 percent to 680 billion rupees ($13 billion) over the past 12 months, ended down 1.3 percent at 1,182.80 rupees in a Mumbai market that fell nearly 3 percent.