Infosys' revenue rises, but margins are under pressure

Salary increases cut into margins at Infosys in the third quarter

Indian outsourcer Infosys saw profit decline even as revenue grew in the third quarter, as a result of an increase in salaries and a provision for a visa investigation in the U.S.

The company reported revenue of US$2 billion for the quarter, up 15 percent from the same quarter a year earlier under IFRS (international financial reporting standards). But net profit was down 11 percent year on year at $383 million.

Infosys also set aside $35 million in connection with a possible civil resolution of a visa issue with U.S. authorities.

The company has forecast revenue growth of 9 percent to 10 percent for its fiscal year ending March 31. It had earlier cautiously forecast revenue growth in a broader range of 6 percent to 10 percent. While overall discretionary spending by customers is muted, there are some growth markets including cloud-related deployments, CEO S.D. Shibulal said in a conference call Friday.

Infosys' revenue in rupees was up 31.5 percent, while profit grew 1.6 percent, in part because of the fall of the Indian rupee against the U.S dollar by about 11 percent in the quarter.

The Indian outsourcer's performance has been trailing that of its larger rival Tata Consultancy Services for a number of quarters, leading the company's co-founder and first CEO, N.R. Narayana Murthy, to return as the company's executive chairman in June.

Murthy was chairman and CEO of Infosys from its founding in 1981 to 2002, and remained as chairman until 2011, when he was appointed chairman emeritus, largely an honorific position.

The company has also seen in the last quarter the exit of some key executives, including Ashok Vemuri, a member of the board and head of its Americas business. North America is the largest market for Infosys, accounting for 61.5 percent of revenue, followed by Europe with 24 percent of revenue. The company has a strong leadership cadre to cope with these changes, Shibulal said.

The company added 2,964 staff in the quarter, taking the total to 160,227.

John Ribeiro covers outsourcing and general technology breaking news from India for The IDG News Service. Follow John on Twitter at @Johnribeiro. John's e-mail address is john_ribeiro@idg.com

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