Infosys' shares on the BSE rocketed 16.9%, closing at Rs 2712.60 on Friday. This is its biggest gain since April 2001. Its share price in 2012 had slipped by 16.2% following a series of setbacks, even as its closest rival TCS had surged by 8.2%. In that sense, it is a big turn around in fortunes for Infosys.

The new forecast represents a 6.6% revenue rise from a year earlier. The growth outlook is inclusive of $104 million in revenue from Lodestone, a Swiss-based consulting firm that it acquired last year. The company's net profit stood at $434 million (Rs 2,369 crore) for the quarter, registering a flat growth sequentially. Analysts had expected Infosys to finish with a lower income.

JP Morgan in a note expressed surprise. “We are positively surprised by Infosys' performance and need to study the durability of the company's comeback,” it stated. Some of the analysts had expected Infosys to pare its annual revenue growth to 3.3%, after the company had said last month that US clients had cut back on projects.

The firm's revenues in dollar terms rose by 6.3% sequentially and 5.8% year on year to $1,911 million. In rupee terms its revenues scaled up 5.7% sequentially and 12% on a year-on-year basis to Rs 10,424 crore. Earnings per American Depositary share (EPADS) forecast remain unchanged, at $2.97 at least.

“We have done well in this quarter despite an uncertain environment,” said S D Shibulal, CEO and managing director, Infosys. “We continue to gain confidence from a strong pipeline of large deals. However, the broader economic environment remains difficult. Even so, we remain cautiously optimistic about the January-March quarter”, he added.

The October-December period is widely regarded as the weakest quarter in the IT sector, owing to lower billing days due to the holiday season. That Infosys has managed to pull off its best showing during Q3, looks creditable. Excluding Lodestone’s contribution, the revenue of Infosys grew to Rs 10,210 crore recording a 3.6% sequential growth while year-on-year it was up 9.8%.

Overall, the company won 53 new clients during the quarter, of which 13 came from Europe. A total of 14 wins arose from its products and platforms vertical.

Partha Iyengar, country manager, research, Gartner India, feels Infosys' results are finally coming closer to reflecting the demand reality. “If this sustains for the next 2 quarters that would indicate that the worst phase of the company is behind it. It can then stand to benefit from the strengthening demand environment.

During the October-December period, the company reported an operating margin erosion of 66 basis points (bps) to 25.7% as against 26.3% in Q2, owing to wage hike and closure during the holiday season. In Q2, Infosys doled out an average 6% hike for employees in India and will implement 2-3% increments for on site employees in the fourth quarter.

Rajiv Bansal, chief financial officer, Infosys, said, “The operating margin during the quarter was 26.1% excluding the charges of the Lodestone acquisition, which was a drop of 0.2% primarily due to the rupee appreciation. We managed to absorb the entire wage hike costs.” Bansal said that the company is carefully looking at all their expenses, adding that the idea is to create investments for future growth.

The pricing during the December quarter was up by 1.8% while the volumes were up by 2%. According to the management, the revision of guidance upwards was partly due to assuming the prices to remain flat at the beginning of the year. Infosys expects the margins to drop by one per cent in the fourth quarter due to the impact of wage hikes for on site employees.

Ankita Somani, IT analyst, Angel Broking, said, “This is a credible performance from Infosys after last 8 quarters of disappointment. With the current set of results, there seems to be a case to re-rating Infosys.”

Geography wise, North America grew at a slow pace at 1.6%, while Europe reeling under the recession grew by 16.6%. India showed a robust growth of 44.7%. The rest of the world grew by 7.4%. “Growth during the quarter in Europe has come from verticals like financial services, manufacturing and energy. We had 3 transformational wins in continental Europe,” said B G Srinivas, head of Europe and Manufacturing, Infosys.

The company pointed out that the growth during the quarter was broad based and across sectors. The BFSI vertical grew by 6.4%, manufacturing by 4.6% and retail and life sciences by 6.6% while energy, utilities, communication and services (ECS) showed the highest growth of 7.8% for the quarter.

Stocks More on Infosys Ltd

Company INFO More on Infosys Ltd

(Reuters) India's No.2 software services provider Infosys Ltd raised its revenue forecast after posting stronger-than-expected quarterly profit, triggering a 15 percent surge in its shares, set for their biggest gain in more than a decade.

Many investors had dumped shares in the company after a string of disappointing quarters eroded Infosys' reputation as the sector bellwether, putting pressure on CEO S D Shibulal to win more deals and make the firm more profitable.

"We continue to gain confidence from a strong pipeline of large deals," Shibulal said in a statement on Friday. "We remain cautiously optimistic about the January-March quarter."

The Bangalore-based company unexpectedly raised its sales forecast for the year ending March 31 to at least $7.45 billion, including $104 million in additional revenue following its acquisition of Switzerland-based consultancy Lodestone Holdings.

That would be a rise of 6.6 percent from a year earlier, compared with a previous forecast for a 5 percent increase.

New deals, including 13 in Europe, helped boost Infosys' revenue. Spending on IT services by capital markets clients such as investment banks and brokerages has also improved, Ashok Vemury, head of Americas and manufacturing, told reporters in Bangalore after the earnings announcement.

Clients that have signed big contracts with Infosys, including Harley-Davidson Inc, also accelerated spending during the quarter, he said.

However, some analysts said it was still too early to predict a recovery for the company.

"We are positively surprised by Infosys' performance, and need to study the durability of Infosys' comeback," JPMorgan said in a research note.

Infosys, for years an investor favourite for exceeding its targets, stopped providing quarterly guidance in July. It now provides only an annual revenue forecast.

Analysts had expected Infosys to trim its annual sales growth to as low as 3.3 percent after the company warned last month that U.S. clients had cut back on projects and delayed signing big deals.

"The market was slightly predatory, given that the last two times the company has disappointed, but this time the organic guidance is better ... which I think will be taken positively," said Rikesh Parikh, vice president for markets strategy and equities at Motilal Oswal Securities in Mumbai.

PROFIT BEATS ESTIMATES

Infosys, whose customers include Bank of America Corp and BT Group Plc, said profit for the three months ended Dec. 31 was 23.69 billion rupees ($434 million) versus 23.7 billion rupees a year earlier. That compares with the average estimate of 21 billion rupees in a poll of 16 analysts.

In October-December, Infosys said revenue rose 12 percent to 104.24 billion rupees from 93 billion a year earlier. That compares with analyst estimates of 96.8 billion rupees. The firm added 53 clients during the quarter, the strongest pace of additions in at least five years.

With about 60 percent of its business in the United States, Infosys is vulnerable to swings in U.S. corporate sentiment and has been hit hard by project deferrals. The company is also particularly exposed to discretionary spending in the financial sector. Its premium pricing has also put off some customers.

Shares in Infosys, valued at about $28 billion, rose 15 percent after the earnings report, headed for their biggest gain since April 2001. The broader index advanced 0.4 percent and the sector index climbed 7.4 percent.

In 2012, shares in Infosys slumped 16.2 percent, underperforming those of larger rival Tata Consultancy Services Ltd, which rose 8.2 percent.

Tata Consultancy is expected to report a profit gain of about 12 percent in the quarter, according to Thomson Reuters data. India's top software exporter, part of the $100 billion Tata Group, will report its earnings on Monday.

Wipro Ltd, the country's No.3 software services provider, may report a quarterly profit gain of 6.7 percent, analysts said. The company, which is restructuring its non-information technology businesses and focusing exclusively on IT, will announce its earnings on Jan. 18.

Fourth-ranked HCL Technologies Ltd is expected to report a 43.8 percent jump in quarterly profit on Jan. 17.

India's $100 billion-a-year IT and back-office outsourcing sector earns about three-quarters of its revenues from customers in the United States and Europe, and faces intense competition from global rivals including IBM, Accenture and Cap Gemini.

INSTANT VIEW/COMMENTARY

JAGANNADHAM THUNUGUNTLA, STRATEGIST, SMC GLOBAL SECURITIES, NEW DELHI

"Investors' expectations from Infosys were so low that even a slight uptick in the forecast will be cheered by the market, and that is helping their cause. The language of the guidance is also slightly better this time with the company saying they have a strong pipeline. This is something we are hearing after a long time.

"One cannot, however, make a firm opinion about the recovery with one set of data point and I think it will take couple of quarters to see whether the company is really on the path of recovery now."

RIKESH PARIKH, VICE-PRESIDENT, MARKETS STRATEGY AND EQUITIES, MOTILAL OSWAL SECURITIES, MUMBAI

"The numbers look better than estimated.

"The market was slightly predatory, given that the last two times the company has disappointed, but this time the organic guidance is better... which I think will be taken positively.

"A good start to the season."

SURESH PARMAR, ASSOCIATE VICE PRESIDENT AND HEAD OF INSTITUTIONAL EQUITIES, KJMC CAPITAL MARKETS, MUMBAI

"Infosys could provide better results in a relatively bad environment. The stock was beaten down in the past and the downside is limited. We advise clients to buy the stock for long-term."

PARAS ADENWALA, MD & PRINCIPAL PORTFOLIO MANAGER, CAPITAL PORTFOLIO ADVISORS, MUMBAI

"Some short covering can be expected. One will see improvement in Infosys in particular and for IT sector in general. My sense is that de-rating would stop in a while as bottom has been formed."

MARKET REACTION