25 October BENGALURU (INDIA): Infosys drastically slashed its revenue guidance for the fiscal, marking a sombre start to new chairman Nandan Nilekani’s tenure and reflecting perhaps the turmoil the company went through over the past months.
India’s second largest software services company by revenue said it now expects to grow between 5.5% and 6.5% for the fiscal ending March 2018 in constant currency, down from 6.5%-8.5% it had forecast three months earlier. Constant currency negates the effect of currency volatility, over which the companies have no control.
On a reported currency basis, the company is projected to grow between 6.5% and 7.5%, a decline from the 7.1%-9.1% expectations under former chief executive Vishal Sikka. The company announced the results after the close of the stock markets on Tuesday, so the impact of the guidance on the share price remains to be seen.
The company did not offer any significant explanation for the cut in guidance, other than to say that the company now has better visibility into the full year compared to three months ago. CEO U B Pravin Rao also said Q2 was slower than expected, as it was for much of the industry.
For the second quarter ended September 30, Infosys’ revenue on constant currency rose 2.2%, better than the performance of peers TCS and Wipro. On a reported currency basis, it was up 2.9% to $2.73 billion. Compared to the same quarter in the last fiscal, Infosys’ revenue on constant currency rose 4.6%, higher than Wipro’s 2.8%, but lower than TCS’ 7.1%.
Chairman Nandan Nilekani described it as excellent results given the circumstances. “It was an eventful quarter, there were changes at the CEO and chairman levels, a third of the board resigned, there was a lot of turbulence. Yet, the organisation under Pravin combined to focus on the customer,” he said. Rao noted that Infosys’ sequential revenue growth in the quarter was significantly higher than that of its peers.
Net profit was up 7% sequentially to $578 million in the same period, while the operating margin was up marginally to 24.1% from 24.06%.
“Our focus on improving operational efficiencies enabled us to deliver stable margins in the quarter and at the same time provide compensation increases and higher variable payouts to our employees.” said chief financial officer M D Ranganath.
North America, which contributes to a major pie to all IT services’ companies’ revenue, grew 1.9% sequentially on constant currency, Europe 4.1%, while the India business was down 5.1%. The banking, financial service and insurance (BFSI) vertical was up 2.6%, manufacturing 1.2%, and retail 1.7%.