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Infy CEO on the uncertainties facing the IT giant

April 13, 2013 08:27 IST

In a quarter when everyone was expecting Infosys Technologies to continue with the good show demonstrated in the earlier one, the company again disappointed investors, with lacklustre numbers. S D Shibulal, managing director and chief executive officer, tells Bibhu Ranjan Mishra & Pradeesh Chandran that the company is seeing more uncertainties now than it had earlier. Excerpts:

Why did you revise your revenue guidance (forecast) upwards in Q3 (the third quarter), when you had just three more months to complete the financial year? And, finally, you missed the guidance.

It was not a revision of guidance in Q3; we just included Lodestone (the Zurich-based management consltancy it acquired by October 2012) because it was a fair thing to do. So, what we missed was the guidance of five per cent. In fact, we had given a guidance of eight to 10 per cent at the beginning, which we subsequently revised to five per cent and stuck to that. In Q3, we said we had severe gaps which we needed to bridge. We managed to bridge some of these.

But you also missed the 6.4 per cent revenue guidance given for the year, including Lodestone’s revenues.

There are a couple of reasons for this. One, as you know, Q4 is always a softer quarter. We had an ambitious goal of achieving 2.7 per cent in Q4 and we knew there were challenges. It turned out to be a much softer quarter than we expected. Some of the ramp-ups did not happen. The onsite volume went up; it was not so in offshore. We also had a pricing drop last quarter, despite the increase in volume.

Have you started compromising on pricing?

On pricing, we always go for a portfolio approach; it’s not about compromising. Our revenue productivity is a reflection of multiple things. If the share of consulting and system integration goes up, our revenues also go up. So, our revenue productivity has come down by about three per cent and we expect a tailwind from it for a longer time. As the portfolio shift changes happen and the environment improves, we will have some pricing power. At this point in time, there is pricing pressure.

You have given a guidance of 6-10 per cent revenue growth. Why such a broad range?

For the past eight quarters, we have seen volatility in the environment. We have waited for this to end but it has not. So, we have to accept the reality that the market is getting volatile. We are seeing more uncertainties now than in the past. The signals are all quite mixed. On one side, you get some positive news about the US economy; on the other side, you hear the PC (personal computer) sales have dropped in that country. Because of this volatility, we have given a broader range.

You said clients’ ramp-ups are happening. Are you also seeing clients ramping down?

No, we are not seeing any cancellation.

Infosys as a company was known for its profit margins but this seems to be slowly slipping away. What kind of margins are you expecting?

Our aspiration always is to have higher margins, though there could be some short-term challenges. We are entering a year with few headwinds. The full impact of the compensation hike we gave last year has not yet been fully factored into our margins. The Lodestone acquisition charge will continue to impact us. On the visa front, we are not sure how many we will get because of the over-subscription. This might mean increase in onsite recruitments and subcontracting costs.

Will there be a compensation rise during your regular appraisal cycle this time?

There are multiple things under discussion. Once we come out with any conclusion, we will let the employees know.

Bibhu Ranjan Mishra & Pradeesh Chandran in Bangalore
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