Infosys to give clearer picture on guidance post Q2Infosys to give clearer picture on guidance post Q2

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IT major Infosys sounded cautious and said that the company will give a clearer picture of its revenue growth guidance post the September quarter. The management also said that its performance in second quarter will be better than the first quarter. However, several analysts feel that a further guidance cut may be in the offing.

At an analyst meet Infosys also acknowledged that the cancellation of the RBS contract was an instance of cautiousness among key financial clients due to Brexit. The management concurred that they do see some softness in few clients which they had not anticipated at the beginning of the quarter.

“There is a general cautiousness with regard to the macro and hence the management did not want to communicate the guidance just now. There is still one more month to go before the quarter ends and they want to make sure that RBS situation was a one-off. But given they have already stated the lower end of guidance at 10.5% and the situation has just worsened from then to now, a further cut seems likely,” said an analyst from a brokerage firm attending the meet.

Infosys had cut its annual revenue forecast at the top end by 150 basis points (bps, meaning 1.5 percentage points) and at the lower end by 100 bps. The company said it is now expecting its revenues to grow between 10.5% and 12% in constant currency, as compared to the 11.5-13.5% it had given at the beginning of the financial year.

Earlier this month the company had said that the Royal Bank of Scotland will no longer pursue its plan to separate and list a new UK standalone bank, Williams & Glyn (W&G), and instead will pursue other options for the divestment of this business. Infosys has been a W&G program technology partner for consulting, application delivery and testing services, and subsequent to this decision, will carry out an orderly ramp-down of about 3,000 persons, primarily in India, over the next few months.

Vishal Sikka, CEO, Infosys also concurred the uncertainty in macro impacting the company. “There are uncertainties across sectors, geographies. We did not see the RBS ramp down coming at the start of the quarter. We are seeing softness in some clients, post Brexit, now which was not anticipated at the start of Q2. We want to see if the RBS is a one-off case or there are more like RBS,” said Sikka.

Analyst present at the meet said that the management looked and sounded much more cautious. “They did say that client specific issue are in Europe but it is not restricted to Europe. There are a few cases outside Europe as well,” said an analyst on condition of anonymity.

Sikka also cautioned that though the company has been able to win large deals in the last few quarters they need to be cautious as ramp-ups continue to take time. “Our performance both in terms of market share and overall deal pipelines remains strong. We have been on a good trajectory in the last few quarters and I expect this to continue. However, we have to be cautious about large deals,” he added.

On a much positive note for the employees, Sikka clarified that the company is not doing any layoffs. “Every employee at Infosys is valuable. There is no involuntary attrition,” he said. There were reports in media that the company has sacked close to 500 employees. Infosys earlier in a press statement had said that these employees were asked to leave on performance basis.

Infosys’ first quarter performance had disappointed the Street as it missed expectations. For the first time in the last four quarters the company missed its revenue guidance. The management had attributed the softness in number due to challenges in the consulting services segment and core banking product Finacle.

Despite the near term hiccups, Sikka sounded confident about the digital strategy that the company has chosen to tread. MANA, an artificial intelligence platform from Infosys, which has been operational for the last four months has seen good traction. “We have the first four clients on MANA and they are live. We have another dozen or so engagements underway. I am excited about MANA as it is renewing our existing business and services and we are expanding to new deals and projects,” said Sikka.

When asked if there have been any issue that has disappointed him? Sikka said that after being in the industry for the last two years the conversations that he (Infosys) still has with clients are not strategic or of high level. I wish that we had the ability to have a much more strategic conversations with clients, we have started that but still at a relatively small number of client, approximately 50 out of more than 1,000 clients. This is the case with the entire industry,” he added.