Infosys cuts revenue guidance

By: Priyanka Yadav

Infosys lowered its guidance for the second time in a fiscal, a move unprecedented in the company's history, hurt by volatile macroeconomic conditions in Europe post the Brexit vote, cancellation of a project with a major client and slower ramp-up in large deals.

India’s second largest software services exporter, Infosys, pulled down is revenue growth guidance for the current financial year to 8-9%, whereas it opened the year with a 11.5-13.5% forecast. Just a few weeks back Infosys had shrunk the revenue growth projection for the year to 10.5-12%. Shares of the company fell as much as 4.3% to Rs 1,007 in morning trade on BSE on Friday.

IMPACT

The cut in guidance meant Infosys was back to single digit growth rates, something that plagued the company between 2011 and 2014 before chief executive Vishal Sikka took over. It also casts doubt on the former SAP executive's plan to achieve the ambitious target of $20 billion annual revenue, 30% margins and $80,000 revenue per employee for the Bengaluru-based company by 2020.

"While we continue to navigate an uncertain external environment, we remain focused on executing our strategy and increasing momentum of our software plus services model. Considering our performance in the first half of the year and the near-term uncertain business outlook, we are revising our revenue guidance." Sikka said in a statement.

INFOSYS VS TCS

Infosys' sequential revenue growth was, however, better than its larger rival TCS, which reported 0.27% rise in revenue on Thursday, due to a drop in revenue from its banking, financial services and insurance (BFSI) clients in the US, softness in the retail segment and volatility in its India business.

EFFECT

Analysts widely expect this trend to negatively impact other Indian IT services company as well given the slowdown in technology spends in the BFSI segment, which brings in a majority of the revenue. Financial services companies in the US have been under pressure over the last few years as interest rates remain at record low levels and stricter regulations leave them with little room to manoeuvre.

Net profit rose 3.9% to $539 million from $519 million sequentially while operating margins increased 80 basis points to 24.9% in the same period. "Our margins expanded during the quarter on the back of further improvement in operational efficiency. Operating cash flows for the quarter were healthy and we effectively navigated a volatile currency environment through prudent hedging," " said chief financial officer MD Ranganath.