After reporting numbers that were below the Street’s expectations, the management - including S D Shibulal, MD and CEO of Infosys - spoke to analysts on the performance in the recent concluded quarter and the road ahead. Here are the key takeaways from the concall:
On demand environment and expectations for FY14
Shibulal: The first half is a good indication won deals worth $960 million and the pipeline is robust. Our onsite efforts grew 3.7 per cent, but offshore moved up 0.5 per cent. We have seen delays in ramp ups. Offshore has to pick up for things to pick up. Pricing is under pressure. Pricing in consulting and system integration may sustain.
Key disappointments in Q4
Shibulal: In the beginning of Q3 we said gaps in Q2 revenues and in Q3 growth of 4.2 per cent growth happened. We had gaps we had to address which we had to bridge.
Sources of volatility in margin
Shibulal: Entering year with margin headwind, gave an increase of 6% offshore and 3% onsite. Remaining 10 months increase $140 mn headwind of increase.
Lodestone payout has to be made and accruing on P&L of $40 million. During the quarter, there were five deals and offshore part of Lodestone, which will get built but over time. Issue on onsite staffing capacity due to visa issues and unsure about percentage of conversion on visa application because of over subscription. So, we have to increase sub contracting. Sub-contracting up over 2% the last few quarters. Growth is the only solution and that will help margin.
For the full year, volumes went up 8.8% but revenues went up by 4.3% which implies that productivity is coming down and cost is going up. There will be pressure on margin. We cannot compromise on investments.
Why growth is lower than NASSCOM's guidance FY14
Volatility we face will be higher as system integration and discretionary spends for us accounts for 33% compared to industry.
On organic growth in FY14
Organic Growth Guidance 6-10% includes everything. We will give one guidance and no split between organic and inorganic.
On Lodestone revenue reversals
We have guidelines and on the rewvenue front there are adjustments we need to make.
On hiring plans for the year
We have committed 10,000 people will join us this year. In add we will see growth as our utilisaiton levels are still very low.
Change in margin commentary
Margin would be in a narrow band of 100 basis points in Q3. Based on the guidance we realise that q-o-q volatility is very high and we had gaps in our guidance for Q4. We have reasonale assurance for the FY14. If deal closures don't happen we face margin issues. We have to solve growth issues. It is very difficult to maintain margin guidance to meet growth challenges.
