Shares of India's second largest software services provider Infosys tumbled 10% on Thursday morning after the company disappointed the street with lower-than-expected first quarter net profit and a significant cut in US dollar revenue guidance.
Its consolidated net profit for the first quarter rose 33% year-on-year (down 1% sequentially) to Rs 2,289 crore, while revenue was barely in-line at Rs 9,616 crore, up 29% (up 9% quarter-on-quarter).
Analysts on average were expecting Infosys to report a net profit of Rs 2,448 crore on revenue of Rs 9,665 crore.
Tech companies have been hit hard as clients delay decision making and cut budget spends amid the global economic uncertainties led by the Eurozone debt crisis. The volatile currency movements have also hurt IT firms. On top of that Infosys has also been bogged down by internal restructuring issues over the last few quarters.
Infosys once trendsetter has fallen behind rival Tata Consultancy Services, missing already conservative guidance for several quarters and that trend has continued in April-June.
The company was expected to cut its US dollar revenue guidance following the sharp depreciation in rupee to the dollar. But it shocked the street with a forecast of just 5% growth in USD revenue growth for the full year, sharply lower than its earlier guidance of 8-10% growth. It now expects its USD revenue will be at least USD 7.34 billion this year.
Its USD earnings per share is expected to be at least USD 3.03, up 1% YoY.
In another surprise move, it has not provided guidance for the second quarter, citing an unclear client spend environment.
In the first quarter, its USD revenue rose 5% to USD 1.75 billion, which was also lower than its own and street forecast of USD 1.77 billion.
"Global currency volatility continues to a big challenge for the industry," said V Balakrishnan, CFO.
SD Shibulal, Infosys CEO and MD also said there were challenges in the global economic situation resulting in slower IT spends by large corporations.
While Moshe Katri, MD of Cowen & CO, agrees the environment has deteriorated considerably, he told CNBC-Tv18 that Infosys is going through transformational and structural issues; the biggest disappointment was the guidance.
India's largest software services provider TCS will also report its first quarter earnings post market hours. Analysts on average expect the profit after tax to grow 11% quarter-on-quarter to Rs 3,250 crore while revenue is seen up by 12% to Rs 14,806 crore.
At 9:30 hrs, Infosys shares were down 9.4% at Rs 2,239.80 on NSE. TCS was down 1.1% at Rs 1,244.50.