Infy sounds caution over next 2 quarters

On Friday, Infosys beat estimates with a sequential revenue growth of 4.5%

Infosys' Chief Operating Officer U B Pravin Rao is cautious about the information technology company's performance over the next two quarters.

"It is too early to say that (there has been a turnaround). We need to have three to four quarters of consistent performance," Rao told Business Standard. "The second half has been historically challenging over the last two years, so we need to watch the next two quarters."

Investors and analysts cheered Infosys' strong performance in July-September and shares of the Bangalore-based company ended seven per cent higher on Friday.

Infosys posted quarter-on-quarter revenue growth of 7.8 per cent and 15.1 per cent, respectively during the first two quarters of 2014-15. However, in October-December 2013, Infosys had a weak 0.5 per cent quarter-on-quarter revenue growth. In the following quarter, the company posted a 1.2 per cent sequential decline in revenue.

With fresh budget allocations leading to strong demand in the first half of 2014-15, the next six months are likely to be softer for Indian infotech companies because of fewer billing days in the US and Europe. Over the last few years, only Tata Consultancy Services, India's largest infotech company,  has sustained strong growth during this period.

According to Rajiv Bansal, chief financial officer of Infosys, the  October-December quarter has always been a tough one for the company because operational parameters like utilisation peak in the previous quarter. He also said even though the company had improved its margins in the past two quarters, it might finally end at around 25 per cent for the year.

"It is not easy to sustain a utilisation rate of 82 per cent as you have to hire people ahead. Then, you have a lesser number of working days in the quarter. We have to make investments in the business as attrition is high. We have to invest in marketing and expansion," Bansal said.

"When expectations on margins are high, it is a challenge to invest money in the business. The idea is to invest and get good, sustainable growth and then look at the margins," he added.

This year has been a mixed bag for Infosys as it battles company-specific issues. In the first quarter, the company posted a 0.8 per cent decline in revenue. On Friday, the company beat estimates with a sequential revenue growth of 4.5 per cent.

Rao also said the turnaround at the company would be spread over three years, according to a map laid out by co-founder and former chairman N R Narayana Murthy. "This is a services business where to introduce something new, you have to pilot it, you have to see its acceptance, and you have to build capabilities. So we have to give ourselves three years," he said.

Upon re-joining Infosys on June 1, 2013, Murthy had set out a course for the revival of a company that was once a sector bellwether. Murthy set timelines for his strategy of cost rationalisation (which he said would start yielding results in 6-18 months), sales effectiveness (which would take 9-21 months to show results) and delivery effectiveness (benefits from which would be visible in 18-24 months).