Bangalore-based IT behemoth Infosys on Friday did something that made investors and industry analysts go back to their earlier analysis and forecast about the company to see what went wrong with their projections of a lower full year revenue guidance.
The shocker came in the form of Infosys raising its fiscal '13 revenue forecast to $7.45 billion, tad higher from the $7.34 billion given earlier.
The industry grappled to find solid reasons as to why the company, which in early December predicted that Hurricane Sandy in the US could affect their revenues in the quarter ended December 31, 2012, actually went ahead posting better-than-expected results.
Its shares on the Bombay Stock Exchange (BSE) soared 16 per cent on Friday, even 17 per cent for a while, as investors welcomed the 'overachiever' once again after many turmoil-laced quarters.
Though Lodestone, a Zurich-based management consultancy firm that it acquired in the second quarter, added Rs 214 crore to its revenues, the company could add only a meagre Rs 8 crore to its net profit; but for the contribution, the company's net would have actually declined, though revenues increased 12 per cent.
Infosys Chief Executive Officer and Managing Director S D Shibulal, however, patiently answered all queries related to the last-minute turn in the company's fortunes, attributing it to 'hard work' and 'closely working with clients'.
In an interview to Shayan Ghosh of Deccan Herald, Shibulal, the last of the co-founders at the helm of the company, says that even though the company has improved its performance, he doesn't share the business optimism of India Inc. On the contrary, he says that the world has not changed in last 90 days.
What was it that caused the turnaround in December and prompted you to increase FY '13 guidance?
When we entered the quarter, we talked about the rest of the year, and to meet the (at least) 5 per cent guidance for the entire year, we had (targeted) 3.7 per cent of growth for the quarter and when we were trying to achieve it, we found that there were some new headwinds that came up.
One was that in Q3, we have furloughs which are shutdowns (planned shutdowns), and we saw that we were faced with more than planned shutdowns or unplanned ones and we also had the superstorm 'Sandy' whereby our people could not work for couple of weeks.
So both these were factored to impact us and thus we said we were seeing challenges.
What happened then was our people worked very closely with clients and actually mitigated most of the impact.
Apart from this, the deals we won in the previous quarters, especially the deals in consulting and system integration, ramped up. So these allowed us to overcome the challenges we faced in December.
Are you still seeing a delay in decision-making among your clients?
Yes, we are. The world has not changed in the last 90 days; it's still volatile and uncertain. Our clients have a lack of confidence, which leads to delays in decision-making, and sometimes, delays in ramp-ups and even ramp-downs.
From your discussion with clients, do you see them loosening their purse-strings?
No, next year we expect the budgets to be flat and marginally down. Even when budgets are closed, scrutiny will continue to be there. So, there will be heightened level of scrutiny with regards to spending by clients next year.
With the US 'fiscal cliff' resolved, how do you see your business faring in the coming quarter?
It will give some confidence to our clients in Q4, but if you look at the financial industry, they are laying off 60,000 people. And when there is that kind of uncertainty in the job scenario leading towards unemployment, consumer confidence cannot be very high. This, in turn, means that the confidence of clients to spend is bound to be challenged even in the coming quarters.
What are the reasons behind drop in operating margins when compared to the same quarter last year?
There are multiple factors. We had a revenue productivity drop of 3.7 per cent a couple of quarters back, which has impacted margins. We are also operating below utilisation levels by about 7 or 8 per cent. That had a direct impact of about 1.5 per cent and an indirect impact of 2.5 per cent. On top of that, this quarter we gave a wage hike of 6 per cent for offshore employees, which added another percent. So these were factored in the third quarter results.
Though marginal, why has the net profit dropped on a year-on-year basis?
I think the other income last quarter was pretty high, which has come down in Q3. (Infosys' other income for the quarter ended December 31, 2012 was Rs 503 crore, 28.8 per cent lower than Rs 706 crore in Q2).
How has the Lodestone acquisition helped you in the quarter?
The Lodestone acquisition has improved our capability in continental Europe and in consulting and systems integration. We had one deal win in Q3 arising out of that (combined win). The integration is in progress and next fiscal we expect the synergies to yield results.
What was the reason behind the shift of your American Depository Shares (ADS) from Nasdaq to New York Stock Exchange (NYSE)? Is Infosys now more focused on Europe?
Our Europe revenues are going up and thus it makes sense to have an European presence. NYSE will allow us to list in Europe using the Euronext.
The shocker came in the form of Infosys raising its fiscal '13 revenue forecast to $7.45 billion, tad higher from the $7.34 billion given earlier.
The industry grappled to find solid reasons as to why the company, which in early December predicted that Hurricane Sandy in the US could affect their revenues in the quarter ended December 31, 2012, actually went ahead posting better-than-expected results.
Its shares on the Bombay Stock Exchange (BSE) soared 16 per cent on Friday, even 17 per cent for a while, as investors welcomed the 'overachiever' once again after many turmoil-laced quarters.
Though Lodestone, a Zurich-based management consultancy firm that it acquired in the second quarter, added Rs 214 crore to its revenues, the company could add only a meagre Rs 8 crore to its net profit; but for the contribution, the company's net would have actually declined, though revenues increased 12 per cent.
Infosys Chief Executive Officer and Managing Director S D Shibulal, however, patiently answered all queries related to the last-minute turn in the company's fortunes, attributing it to 'hard work' and 'closely working with clients'.
In an interview to Shayan Ghosh of Deccan Herald, Shibulal, the last of the co-founders at the helm of the company, says that even though the company has improved its performance, he doesn't share the business optimism of India Inc. On the contrary, he says that the world has not changed in last 90 days.
What was it that caused the turnaround in December and prompted you to increase FY '13 guidance?
When we entered the quarter, we talked about the rest of the year, and to meet the (at least) 5 per cent guidance for the entire year, we had (targeted) 3.7 per cent of growth for the quarter and when we were trying to achieve it, we found that there were some new headwinds that came up.
One was that in Q3, we have furloughs which are shutdowns (planned shutdowns), and we saw that we were faced with more than planned shutdowns or unplanned ones and we also had the superstorm 'Sandy' whereby our people could not work for couple of weeks.
So both these were factored to impact us and thus we said we were seeing challenges.
What happened then was our people worked very closely with clients and actually mitigated most of the impact.
Apart from this, the deals we won in the previous quarters, especially the deals in consulting and system integration, ramped up. So these allowed us to overcome the challenges we faced in December.
Are you still seeing a delay in decision-making among your clients?
Yes, we are. The world has not changed in the last 90 days; it's still volatile and uncertain. Our clients have a lack of confidence, which leads to delays in decision-making, and sometimes, delays in ramp-ups and even ramp-downs.
From your discussion with clients, do you see them loosening their purse-strings?
No, next year we expect the budgets to be flat and marginally down. Even when budgets are closed, scrutiny will continue to be there. So, there will be heightened level of scrutiny with regards to spending by clients next year.
With the US 'fiscal cliff' resolved, how do you see your business faring in the coming quarter?
It will give some confidence to our clients in Q4, but if you look at the financial industry, they are laying off 60,000 people. And when there is that kind of uncertainty in the job scenario leading towards unemployment, consumer confidence cannot be very high. This, in turn, means that the confidence of clients to spend is bound to be challenged even in the coming quarters.
What are the reasons behind drop in operating margins when compared to the same quarter last year?
There are multiple factors. We had a revenue productivity drop of 3.7 per cent a couple of quarters back, which has impacted margins. We are also operating below utilisation levels by about 7 or 8 per cent. That had a direct impact of about 1.5 per cent and an indirect impact of 2.5 per cent. On top of that, this quarter we gave a wage hike of 6 per cent for offshore employees, which added another percent. So these were factored in the third quarter results.
Though marginal, why has the net profit dropped on a year-on-year basis?
I think the other income last quarter was pretty high, which has come down in Q3. (Infosys' other income for the quarter ended December 31, 2012 was Rs 503 crore, 28.8 per cent lower than Rs 706 crore in Q2).
How has the Lodestone acquisition helped you in the quarter?
The Lodestone acquisition has improved our capability in continental Europe and in consulting and systems integration. We had one deal win in Q3 arising out of that (combined win). The integration is in progress and next fiscal we expect the synergies to yield results.
What was the reason behind the shift of your American Depository Shares (ADS) from Nasdaq to New York Stock Exchange (NYSE)? Is Infosys now more focused on Europe?
Our Europe revenues are going up and thus it makes sense to have an European presence. NYSE will allow us to list in Europe using the Euronext.