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India's Infosys shares seen boosted by results

BANGALORE: Shares of India's top computer software firm Infosys Technologies Ltd are expected to climb in the near term on strong profit growth during 1999/2000 (April-March), analysts said on the weekend.

Infosys, the star in India's glittering technology stock sector, will continue to bring handsome returns for investors as it builds on significant investment in its marketing capabilities and Internet business, they said.

Infosys will kick-off the full-year earnings season for India's heady software sector when it announces its results on April 11.

A Reuters poll of 15 brokerages in late March forecast an average rise of 71 percent in the company's sales for the year which ended on March 31, to 8.7 billion rupees ($199 million), while net profit is expected to grow 106 percent to 2.79 billion rupees ($64 million).

"They have already posted after-tax profit of two billion rupees during the first nine-months of the year and nothing much has changed during the last quarter. So 2.79 billion should not be a problem," said Srividya Rajesh, an analyst at Sundaram Newton Asset Management Co Ltd.

Analysts said Infosys shares are currently trading at a price-to-earnings ratio of 100 which was an attractive level.

"I am very much convinced that from these (share price) levels, you can expect 50 percent-plus returns from Infosys in six to eight months," said an analyst at a British brokerage who declined to be identified.

Infosys became India's first firm to list in the United States when its American Depositary Receipts (ADRs) were listed on the U.S. Nasdaq in March 1999. Each ADR represents half a local share.

Infosys shares surged eight percent to hit the daily circuit breaker for the second consecutive day on Friday to 9,110 rupees on the Bombay Stock Exchange (BSE).

The shares are off a peak of 12,789.75 reached on March 7, but are still up 25 percent so far this year. By comparison the bell-wether 30-share BSE index, in which Infosys has the highest weightage of more than 20 percent, has gained just 4.26 percent this year.

Its ADRs rose 11 percent to end at more than $276 on Friday, bringing its gains to 67 percent so far this year.Alroy Lobo, analyst at Kotak Securities, said earnings growth at Infosys was being driven by a combination of factors.

"It's a story of a growth brought by larger (business) volumes, higher prices and an increase in their manpower," Lobo said.

"They have invested heavily in marketing and into maintaining a strong relationship with their clients."

Lobo said Infosys factors into its contracts with clients an 8-10 percent annual increase in its U.S. dollar billing rates while other Indian firms do so once in three years.

"Larger volumes bring economies of scale while higher capacity utilisation improves earnings enormously and drives their overall business," he said.

Analysts said Infosys, backed by such fundamentals, has demonstrated that its high share price is justified.

The firm is expected to see slower earnings growth over the next year (2000/01) as it builds on a larger base but net profit is still likely to rise 70 percent, they said.-Reuters