Syntel's Q3 results outshines Wall Street expectations

Syntel's revenue for the third quarter increased one percent to $104.7 million (Rs.506 crore), compared to $103.8 million (Rs.502 crore) in the prior-year period, and increased five percent sequentially from $100.1 million (Rs.484 crore) in the second quarter of 2009.

Sequential revenue improvement was driven by its Applications Outsourcing service offering, and growth was broad-based across all verticals. During the third quarter, Applications Outsourcing accounted for 74 percent of total revenue, with Knowledge Process Outsourcing (KPO) at 18 percent, e-Business contributing six percent and Team Sourcing at two percent.

The Company's gross margin improved to 49.3 percent in the third quarter, compared to 44.3 percent in the prior-year period (500 bps increase) and 48.2 percent in the second quarter of 2009 (110 bps increase). Selling, General and Administrative (SG&A) expenses were 18.1 percent in the third quarter, compared to 19.1 percent in the prior-year period and 20.8 percent in the previous quarter.

Syntel's income from operations expanded to 31.2 percent in the third quarter as compared to 25.2 percent in the prior-year period (600 bps increase) and 27.4 percent in the second quarter of 2009 (380bps increase).

"Increasing stability in the business environment and a gradual improvement in customer confidence had a positive effect on our top line during the third quarter," said CEO and President Keshav Murugesh. "While our clients remain comfortable in moving forward with cost reduction initiatives, they are now increasingly willing to discuss longer-term business plans and strategic technology investments."

"The strong financial and operating discipline at Syntel has been evident in our financial performance during a very difficult nine month period. We expect that as demand for offshore services improves, costs of doing business in India will increase resulting in margin pressure. Syntel continues to invest in the people, infrastructure and new services necessary to drive long-term sustainable value for all of our key stakeholders."

Based on current visibility levels and an exchange rate assumption of 47.0 rupees to the dollar, the Company is updating 2009 guidance from Revenue of $395Mn (Rs.1,910 crore) to $415Mn (Rs.2,007 crore) and EPS of $2.40 to $2.50 to Revenue of $405Mn (Rs. 1,959 crore) to $408Mn (Rs.1,973 crore) and EPS of $2.60 to $2.65.

Agencies