BackInfosys maintains full-year revenue guidance
COO UB Pravin Rao says attrition still an area of concern and it would take a few more quarters to bring down levels to 13-15%
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Bangalore: Infosys Ltd, India’s second-largest software services exporter, warned on Tuesday that it may take a while for the company to regain consistent industry-leading revenue growth, while maintaining its full-year revenue growth forecast of 7-9% for fiscal year 2014-15.
At an investor conference in Mumbai, chief operating officer (COO) U.B. Pravin Rao also said Infosys would look to maintain operating profit margins at 24-25% for the fiscal, even as it faces volatility and slower demand from top clients in sectors such as life sciences, retail, consumer packaged goods (CPG) and logistics.
“It will take a while for us to get growth back," Rao told investors. “On the growth side, we have said in the last couple of years, we have definitely underperformed, both from an industry side as well as from our own high aspirations...Unless we get growth back, it is very difficult to get sustainable margins."
Infosys’s revenue growth guidance is far below industry expectations. Industry lobby group Nasscom has forecast software export revenue growth at 13-15% for 2014-15.
“Overall we’re seeing a very stable demand environment. At this stage we’re not seeing anything fundamentally different, so we remain committed to the 7-9% growth. We have not seen any dramatic changes in any of the industry segments," said Rao.
Rao added that Infosys was not aggressive enough in chasing large deals and hence had fallen behind peers.
“We did not recognize that one part of the business had become commoditized and it took a while for us to recognize it. We weren’t aggressive on large deals, we weren’t aggressive enough on captive acquisitions which some of our competitors did better. So that impacted our growth to a large extent," he said.
Rao added that the company would assess and rethink its present strategy and take a call on long-term strategic bets after three months.
“The next few weeks we’ll be rethinking on our strategy. It’s a bit early to say whether there will be any major shift in what we would be doing. By October, we’ll be in a better position to articulate our strategy," he said.
Over the past three-four years, Infosys has missed its own guidance several times, lost its prized bellwether tag and has underperformed rivals such as Tata Consultancy Services Ltd (TCS) and US-based Cognizant Technology Solutions Corp.
In June last year, when co-founder N.R. Narayana Murthy came out of retirement to spearhead a turnaround at Infosys, he talked about a three-year transformation of the company, Rao noted.
“So that journey continues and we’re in year two. We’re confident that in the next couple of years, we’ll be back to where we we’ve been historically and where we want to be aspirationally," said Rao, an Infosys veteran of nearly three decades.
“We’re seeing better traction in financial services, we’re seeing decent traction in manufacturing, we’re seeing good traction in communications and energy," he added.
He also said attrition remained an area of concern and that it would take a few more quarters at least to bring down attrition levels to 13-15%. In the June quarter, Infosys’s attrition rate was nearly 20%—indicating that one in every five employees left the company during the quarter.
“In the recent past, there has been a lot of distraction around CEO succession, a lot of distraction around high-profile exits. With the new CEO in place, with the new leadership in place, we believe that distraction will go away and there will be lot more positivity," said Rao.
In June, Infosys named former SAP board member and chief technology officer Vishal Sikka as its first non-founder CEO.
Rao also indicated that Infosys, which has recently won outsourcing contracts from Harley-Davidson Inc. and Microsoft Corp., would make use of the $100 million venture fund that it has set up to invest in start-ups—one of the first strategic steps Infosys undertook after Sikka took over.
“There are a lot of innovative start-ups out there… We’ve started talking to VCs (venture capitalists)—a couple of weeks ago, we had a large VC showcase six-seven start-ups," he said, adding that Infosys has started evaluating start-ups as part of the process.
Experts tracking Infosys said the company would take a while to regain industry-leading growth, given that CEO Sikka, who is a renowned product innovator, will take time to get used to a services-driven organization.
“Returning to industry-level growth will obviously take time and we shouldn’t expect results from Sikka immediately," said Ankita Somani, research analyst at brokerage MSFL Research. “Also it’s important to remember that even if you win a large deal now, the ramp up takes at least 4-6 months. Also, there’s no real visibility for Infosys in terms of revenue growth for next year. It’ll be unrealistic to expect a dramatic improvement, 15% growth levels next year, taking into account all the metrics on client mining, etc, as of now."
Analysts Viju George and Amit Sharma of JP Morgan India said in a note dated 11 July, “There are near-term risks as Sikka is an outsider to both Infosys and the Indian IT services industry...Sikka may need time to grasp the intricacies of the business before being able to put in place effective restoration mechanisms and monitor them."
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