Infosys Ltd ADR (INFY), Wipro Limited (ADR) (WIT): Is This Indian IT Company Worth Buying?

Infosys Ltd ADR (NYSE:INFY) recently reported its latest quarterly earnings; it was helped in the quarter by the depreciation of the Indian rupee. The company’s shares jumped as its quarterly results were decent and the company maintained its revenue growth forecast. Let’s take a closer look at the results and try to figure out how the company may perform in the future.

Quarterly performance

Ranked in the top 20 list of Forbes’ 100 most innovative companies of 2012, Infosys Ltd ADR (NYSE:INFY)’s revenue for the quarter grew sequentially by 2.7%. In constant currency terms, revenue growth was 3.4% quarter-on-quarter. Earnings per share for the quarter were $0.73, down from $0.76 in the previous quarter. Gross margin in the first quarter was reported flat at the previous quarter’s level of 34.9%.

The major highlight of the results was reported revenue of $1.99 billion for the quarter, up 13.6% year-over-year. Net profit for the quarter was $418 million, a sequential fall of 5.9%. Year-over-year growth was 0.5%, however.

The company added 66 new clients in the first quarter, bringing the total number of active clients to 836. It has a strong presence in consulting, system integration, and it worked with all of the top 10 retailers in the United States in digital transformation. In manufacturing, it is associated with many of the high-tech manufacturers in regard to their transformation and implementation. An important factor regarding Infosys Ltd ADR (NYSE:INFY)’s revenue is that 54% of it is contributed from the consulting and system integration space.

The road ahead

Infosys Ltd ADR (NYSE:INFY) has been falling behind its competitors and it is trying to gain its footing back. It is looking to salvage its market share by aggressively focusing on deals that would carry low margins, something that could have an effect on its profit in the future. The company hopes that these low-margin deals will gradually revert to the normal margin levels and help it to maintain its profitability in the long run.

Infosys Ltd ADR (NYSE:INFY) might face more problems if visa regulations in the U.S. become more stringent, however, as stricter rules will make it difficult for it to send its employees to the nation. Infosys Ltd ADR (NYSE:INFY) has the maximum exposure to North America among its peers, generating 62% of its revenue from there. A change in visa rules will certainly hit the company hard. Infosys might have a strong 2013 as a result of higher spending by the U.S. government and businesses, however.

How is the competition?

Infosys’ major rival, Tata Consultancy Services, has also been making strong moves of late. It is India’s largest exporter of software services and recently reported a 17% jump in earnings. The company is also looking at strong growth in the U.S., as reported by Reuters. Management at Tata Consultancy expects the company to grow at above industry averages as it is forecasting an improvement in demand. Demand from the U.S. is strong for the company’s services, and this is the reason why management is upbeat. Infosys was a bit cautious when it released its own results, however.