Infosys is expected to close the fourth quarter with a marginal contraction or at best flat revenue growth as it seeks to reach the lower end of its guidance of 11.5 per cent to 12 per cent for fiscal year 2013-14.
The earnings before interest and taxes (EBIT) margin is likely to be under pressure given that the rupee has strengthened to the 60 level over the March quarter. Traditionally, the fourth quarter has not been the strongest for IT service providers as the budget for the next fiscal year gets finalised between January and March. Clarity kicks in during the first quarter.
In a report to investors, brokerage firm Prabhudas Lilladher pointed out that Infosys CEO and Managing Director SD Shibulal had earlier highlighted the challenges faced by the company in the retail and hi-tech verticals. “We believe that if the challenges outplay the positives, the company is likely to gravitate towards the lower end of its FY14 guidance, implying a muted Q4,” the report said. IIFL, another brokerage firm, said Infosys should end the fiscal year with revenues of $8.2 billion, which is at the lower end of its guidance.
This is largely because of the slowdown in business momentum during the quarter. There have been unanticipated project rampdowns and cancellations. Further, in a few cases, project ramp-ups have been impacted by skill mismatches, IIFL said.
It also said that even during the next year, the company is expected to grow below industry body Nasscom’s growth forecast of 13–15 per cent. IIFL pointed out that this is a company-specific issue and thus it is likely to impact its relative valuation. What will be more interesting to watch during the current fiscal will be whether Infosys’ nominations committee will be able to zero in on the next CEO to replace Shibulal. It is right now a toss-up between the two presidents, BG Srinivas, who heads the global markets division, and UB Pravin Rao, head of global delivery and service innovation. What remains to be seen is whether a dark horse will emerge while the hunt is on to find the new CEO. Infosys also has a bigger problem in hand in runaway attrition, which it needs to rein in. Several key officials have left the company since NR Narayana Murthy returned as the executive chairman in June last year.
At the lower levels, nearly one-fifth of the workforce has exited the company, which analysts say could affect its ability to swing future deals.
Therefore, Infosys not only needs fresh blood at the top but also a glue to hold the workforce together.