When Infosys said in mid-third quarter that it would meet the lower end of its earlier expectation, many expected the trigger - other than the volatile currency movements - could be the growth the company saw at that time. The Bangalore-based IT firm, while delivering strong numbers in the third quarter, has lowered the guidance for the current financial year and given a flat one for Q4. Infosys CEO & MD S D Shibulal talks to Bibhu Ranjan Mishra and Pradeesh Chandran about the key indicators from various clients and what the company sees in the coming quarter. Edited excerpts:
This is for a consecutive quarter that you lowered the revenue guidance. What is the trigger?
Last time, we did not lower the guidance. We changed it, and that was because of the currency movements. Guidance is based on certain cross-currency movements. For example, if the euro depreciates, our revenue will come down in dollar terms. This time, we had to adjust, because we started talking about it in the middle of the quarter itself. We said we'd meet the lower end of the guidance as the environment had deteriorated.
As you set to enter FY13, does it mean the worst is yet to come?
Most of the problems are on the table at this stage. Most of our clients are grappling with an uncertain and volatile environment, which is affecting their decision-taking ability. My belief is, as the year progresses, clients will get used to it, start taking decisions. This will certainly benefit us. For, if you look at even this quarter, our growth has been wide-spread. This means we have been able to grow a large number of our accounts. It also implies that decisions taken on a wider base will benefit us.
What are your plans to swing the decisions in your favour?
As a part of our new strategic direction, we are getting closer to clients. We are operating in all the areas they spend. That was not the case earlier. We have a clearly articulated framework for the innovation clients want. So, as long as we are working with clients on their growth story, on their differentiation and innovation agenda, we will get the benefit.
In the first three quarters you won 120 clients, whereas in the whole of last year, you bagged 140. What about the quality of these clients?
Of the 49 new clients we added in the third quarter, five are large deals. Of the five large contracts, two are completely new accounts. They will ramp up over a period of time. Our client additions have been pretty strong; also they are marquee clients. See, 145 of the Fortune 500 companies in the US are our clients.
What about the pricing environment? Does Infosys still enjoy pricing premium when compared with the competition?
In the last nine months (three quarters), our pricing has gone up by 6.1 per cent on a year-on-year basis. We expect the pricing to remain stable as long as the industry behaves properly. We are focused on high-quality growth. Thus, we're making sure we have strong capability in consulting and system integration. As long as we do that, we will be able to deliver better business value, which would also result in better pricing.
What are the early indications you get from clients with regard to their budgets?
Clients are closing their budget. We expect most to close it by mid-February. The early indication is that it is expected to be flat or marginally down. Among the verticals, I think the financial services sector is under pressure.
Europe has been showing good growth for Infosys for the last two quarters. Is this trend expected to continue?
We are making some investments in Europe. But, it is too early to say Europe growth is secular. It will take some more time.
Do you expect the volatility to continue for a longer period?
We expect the lack of confidence and volatility to continue for a while because there are multiple reasons. The European crisis is not going to be sorted immediately. True, the situation in the US has improved marginally, but it's election year there. The currency seems completely volatile. So, there are many factors which will keep the environment volatile.
What do you expect from the US in the election year?
There would be some amount of de-focus. New issues will surface.
Generally when it is an election year in the US, we see more rhetoric coming out about outsourcing. We are strengthening our US presence as part of our strategic direction because we are chasing more number of transformational, consulting and system integration works. For that, we need to have more local talent.