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Infosys revenue rises, but outsourcer's costs cut into profit

Infosys' revenue growth was boosted by acquisition of management consultancy firm Lodestone Holding

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Revenue at Infosys grew in the fourth quarter, but profit fell as a result of a wage rise and investments in newer businesses.

Revenue for the quarter was $1.9 billion, up 5.8% from the same quarter last year, helped by the company's acquisition in the quarter of Lodestone Holding, a management consultancy firm in Zurich with skills in the area of SAP software. Revenue grew 3.7% excluding the Lodestone acquisition.

Infosys, like other Indian outsourcers, is making the transition from a business model based on the number of people deployed on a project to pricing based on outcomes in new businesses such as consulting, systems integration, products and reusable technology platforms.

But it needs to spend more up front on facilities, equipment, and staff before the revenue starts kicking in, said Ashok Vemuri, head of Americas at Infosys.

The investments, the cost of hiring new staff, and a 6% salary rise for existing staff in India cut into profits, he said. The company's net profit was $434 million in the quarter, down from $458 million a year earlier.

However, the company saw revenue growth of about 8% over the previous quarter in its consulting and systems integration business, Vemuri said. Of eight large outsourcing deals with a total contract value of $731 million in the quarter, six include significant consulting and systems integration work, he said. The company also bagged 14 new wins in products and platforms.

Infosys has also increased its revenue forecast for the fiscal year ending March 31, to at least $7.45 billion from about $7.3 billion forecast earlier. The difference will come mainly from the Lodestone business, Vemuri said.

An icon of India's outsourcing industry, the company's revenue and profit growth last quarter trailed behind that of its larger competitor, Tata Consultancy Services, which was better able to cope in a difficult market, according to analysts.

The company added 977 employees in the quarter, taking the total to 155,629. It added 53 new clients.

New markets such as Brazil, China, Mexico, South Korea, and Japan are opening up for Indian outsourcers outside North America and Europe, which accounted for about 85% of revenue in the quarter, Vemuri said. In the US and Europe, Infosys is investing in creating more facilities and hiring locals, as there is a marked preference by customers to outsource to a provider with local facilities, he added.



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