India’s economy has over the last decade benefited greatly from the outsourcing boom which moved business support and IT jobs over to the subcontinent. Cities like Bangalore have flourished as a result of this development, turning itself into something of an IT Mecca. While analysts were alarmed at the news of India’s growth slowing to 5%, there is still plenty of value and growth left in the area. Infosys Ltd ADR (NYSE:INFY) is one of the companies that were best able to capitalize on the Indian IT boom, and while it seems fairly valued at the moment, still appears to offer plenty of growth potential.
Infosys, headquartered in Bangalore and founded in 1981, provides a range of business consulting, technology, engineering and outsourcing services to customers worldwide. Richly diversified, it has become one of India’s best known IT companies. The company has a market cap of around $30 billion and over 150,000 employees. The stock is down about 5.5% in the last year and offers a 1.6% dividend yield.
Indian Growth Slowdown
On Thursday it was announced that Indian GDP growth had slowed to 5%, below the analyst estimate of 5.5% as well as government and central bank projections. Analysts feel that the number is realistic, given the sharp fall in industrial production and weakness in exports. This figure is likely to fall further over this fiscal year, as the Indian economy remains plagued by high inflation, infrastructural problems and a large fiscal deficit.
Despite the gloomy macro-economic outlook in India, Infosys once again delivered a decidedly upbeat quarterly report. For Q3 2013, the company announced EPS of $0.76 versus a consensus of $0.72, with revenue also in well above estimates up 6.3%. The company also raised its guidance for the full-year ending March 31st 2013 to a revenue guidance of at least $7.45 billion versus a consensus of $7.32 billion. According to management, the fundamentals of the company have remained intact despite the economic difficulties, and they remain optimistic about the company’s ability to meet the revised guidance.
According to at least one analyst, this beat also bodes well for one of Infosys’ main competitors, the quasi-Indian US-based outsourcer Cognizant Technology Solutions Corp (NASDAQ:CTSH). This company is additionally well positioned to benefit from the US healthcare reforms, which may lead to a great number of outsourcing jobs streaming into India. In terms of revenue there isn’t much to separate these two rivals, though Cognizant’s quarterly earnings growth of 18% looks a lot better than Infosys’ 6%. Also, Infosys looks a lot cheaper than the US outsourcing firm.