5 things Infy mgmt has to say about weak earnings

After releasing a disappointing earnings for April-June, the Infosys management answered analysts’ questions. The focus of conference call was the order cancellation that had resulted in a $15 million write-off, the reasons for scrapping quarterly guidance, and the emerging challenges and outlook. Following are the key points the management made at the conference call.

Management believes company has done well

[caption id=“attachment_375840” align=“alignleft” width=“380”]  AFP[/caption]

Given the delays in decision making and postponing of deals by clients and the general gloom in the business environments in major markets such as the US and the UK, Infosys management believes they have done well by just narrowly missing the guidance. CFO V Balakrishnan said the 200 basis points fall in operating margins was envisaged by the company and was a result of visa costs and higher manpower costs from local hiring in the US.

Cancellation of the Deal was client-specific and a one-off

The management reiterated that clients have not cancelled but deferred orders. On the cancellation of a transformation deal from a European client which resulted in a reversal $15 million unbilled revenues, the company said that it was a one-time event and a client-specific issue. The company is still working with the client.

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Guidance as per comfort

Habitually a conservative on estimates, Infosys said the guidance was based on its comfort level. “It could change tomorrow and is difficult to predict between quarters,” said CFO V Balakrishnan. The management is confident of meeting the 5 percent growth guidance for dollar revenue for the full year. The company had earlier said it stopped giving quarterly projections as uncertainty is mounting on the economy front. Balakrishnansaid the 5 percent guidance is issued after looking at clients’ budgets.

Hiring

The company noted that the attrition has peaked compared with the last quarter and this is largely because employees leave for higher studies around this time. The company plans to hire people laterally in India and the US to beat the attrition rate and to bring in some special skills. Infosys plans to hire 35,000 this year although the wage freeze announced by the company in the fourth quarter of FY12 is here to stay. However, the company has scaled up the promotions this year to around 20,000 employees from the earlier 16,000.

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Growing services

The consulting and system integration portfolio generally attracts higher margins, which is why clients are asking for a discount. Infrastructure management and application testing services are company’s growth areas where demand is likely to increase.