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Infosys 2012-13 outlook a disaster, say experts

The software services major served a huge disappointment with a tepid guidance of 8 to 10 per cent revenue growth for 2012-13, five percentage points lower than analyst expectations of 11 to 13 per cent.

twitter-logoGoutam Das | April 13, 2012 | Updated 19:13 IST

Goutam DasSoftware services major Infosys served a huge disappointment on Friday with a tepid guidance for revenue growth in financial year 2012-13, well below analyst estimates. India's second largest IT exporter guided an 8 to 10 per cent revenue growth for this year, as much as five percentage points lower than analyst expectations of 11 to 13 per cent growth.

Infosys also missed its dollar revenue guidance for the fourth quarter. The firm pulled in $1.77 billion, a sequential decline of 1.9 per cent. The firm, in January, had guided for revenues to be in the range of $1.8 billion-$1.81 billion.

Infosys CEO S.D. Shibulal agreed that the firm was facing turbulence. "We had a difficult quarter in Q4. We have seen a convergence of multiple events. There were delays in contract signings, slow decision making and ramp downs in the US in the BFSI sector. They happened during the end of the quarter. Budgets are closed. They are flat or marginally down. However, we are not getting visibility in spending, particularly in BFSI," he said.

MUST READ:What the investors expected from Infosys Q4

Most of this "convergence of issues" happened in the last month of the quarter, the CEO stated, surprising the company. Some of the ramp downs were because of changes in management in customer organizations - new CXOs did not want to go ahead with projects that their predecessors signed. 

The company's Chief Financial Officer (CFO) V. Balakrishnan said that since the ability of companies to predict the future has drastically come down, the firm's guidance of 8-10 per cent at the beginning of the year was a bold statement to make. "This is a new normal," he said.

The firm would hire 35,000 people in 2012-13 but may not evaluate wage increases this year because of the volatile environment.
 
Shares of Infosys were down 9.20 per cent to Rs 2,497 on the Bombay Stock Exchange at 1.15 pm.
 
Analysts were quick to call the guidance a "disaster" and said Tata Consultancy Services (TCS), India's largest IT firm, should be the new benchmark to judge where the industry is heading.

The numbers are indication that Infosys is slipping in performance. Growing below industry lobby Nasscom projections for the industry, set at 11 to 14 per cent, imply that the firm would underperform even some of the mid-sized companies.

MUST READ:Infosys to hire 35,000 in 2012-13

Dipen Shah, head of Fundamental Research at Kotak Securities said that the results were below estimates. "The guidance reflects the challenging macro scenario which Infosys is facing. We also understand that, a part of the projected underperformance versus the industry is due to the strategy of not chasing low-margin business," he commented. 

The company's management pointed out that pricing for the full year had expanded more than 4 per cent - in an uncertain environment, this is credible and points to what the CFO calls "quality of revenues" versus chasing quantity.

One person with knowledge of Infosys's operations told Business Today that over the last one month, the firm's management struggled to come up with a guidance number for 2012-13 because of a lag effect. The company may have been distracted with a restructuring - Infosys re-organised its vertical structure and reshuffled executive portfolios - with execution slipping in two quarters because of uncertainty of roles.

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Analysts had earlier commented that discretionary spending and project ramp-ups have slowed down for whole of the IT sector but Infosys had more exposure to discretionary spending. The firm's guidance, however, contrasts with that of Accenture, a firm Infosys wants to mimic and compete against.
 
Accenture in March revised its guidance upwards for its year ending August 2012, projecting that the firm would grow 10-12 per cent versus 7-10 per cent seen earlier and commented that the firm "expects continued strong growth in outsourcing and continued moderation in consulting growth".
    
For the year ended March 2012, Infosys generated revenues of $6.99 billion, a growth of 16 per cent over the year ago, meeting its own expectations.

In rupee terms, the firm's net profits jumped 27.4 per cent to Rs 2,316 crore for the three months to March over the year-ago period, or Rs 40.54 per share. Revenues grew 22 per cent to Rs 8,852 crore.

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