Higher growth will bring the attrition rate down for Infosys: Sarabjit Kour Nangra

Interview with Sarabjit Kour Nangra, VP Research - IT, Angel Broking

Analysts are quite impressed by the third-quarter results from Infosys as it turned out to be better than what they had expected. Sarabjit Kour Nangra, VP Research - IT, Angel Broking, expects the company to gradually regain its position of the market leader in IT sector. Speaking to Faraan Tarique, she details the reasons behind her exuberance.  

Third-quarter is historically tepid for the IT sector. In this regard, how do you read Infosys numbers which are better than market expectations?

In the light of the volume growth of 4.2%, I am very impressed by Infosys numbers given that the company's results are improving sequentially since the last two quarters.

The attrition rate at 20.4% still remains a concern for Infosys though Mr Sikka has said that efforts are underway to bring the figure down. How do you see this particular factor affecting the company's ability to compete with its peers?

Attrition is also a function of how fast the company is growing as fast growth kind of subsidises attrition rate. During the days, when TCS was growing at a slow rate they also had the attrition problem. However, once the growth aspect is taken care of and employees are properly rewarded, the attrition rate tends to come down. So, growth is the major factor.

 
What is your sense on guidance of 7 to 9 per cent which is on the basis of September 30 forex rate and would be lower if based on December 31 rates?

The management has indicated that they do not want to take a call on currency rates given the recent volatility in the foreign exchange market. Seven to nine per cent is the constant currency guidance which means that even if in the last quarter there is slow growth they can easily achieve at least eight per cent. Looking at their order book and new clients additions, one can safely say that Infosys would be able to meet this target.

Moreover, rupee's depreciation against US Dollar will prove beneficial for Infosys as more than 68 per cent of their revenue comes from United States.

To what extent do you think the demand environment would be affected by the fluctutations in the currency market?

IT budget for the next year is largely flat as despite the signs of recovery in advanced economies, the outlook in near to midterm is cautious at best. Given the efforts Infosys is expending to get back into the high growth zone one can expect largely decent numbers from the company in the next year.
 
Do you expect the stock to get re-rated following the upbeat third quarter results with the margins at a solid 26.74% and encouraging volume growth of 4%?

Any upward re-rating for Infosys will only happen gradually as people expect Infosys to regain its position of the market leader which is currently occupied by TCS.  Such a switch cannot happen in a hurry.

What are your expectations from other major IT players?

Unlike, Infosys which gets majority of its revenues from US, companies like TCS have a diversified revenue base so it is hard to make a precise prediction. However, I do not expect any major IT player to post significantly subdued results.