Recently in a meeting with Japanese investment bank Nomura, the Bangalore-based IT major indicated that the challenges to growth were more internal rather than external, as it would take time for the company to absorb the recent organisational changes.
The Infosys management pointed out that the company needs a more sustained order booking before turning positive on growth, as the total contract wins of $2 billion over the past four quarters is not sufficient. Internally, Infosys has also seen management transformation in the last two years, including reshuffle of top executives and a string of high-profile exits.
Discretionary spending has also increased, though it has not come back to the extent that the company would like. In the US, the pickup in demand has been broad based which has led to Infosys growing faster in the US versus Europe in the past two quarters, said Ashwin Mehta and Pinku Pappan, analysts with Nomura in its report, adding that Infosys is not planning to recoup the earlier levels of margins given the dual wage hikes and the pricing correction that has happened.
Though the external economic environment remains challenging with business momentum slowing down, Infosys performance over the last two years never really matched with the peers or industry. The firm has not been able to shake off its prolonged spell of sluggish growth even as its larger rival TCS continued to grow thereby widened the revenue gap. TCS has also overtaken Infosys in margin terms over the last one year.
According to the brokerage house, while Infosys has been engaging with clients on next years budgets, management indicated that it is still too early to comment on how they will look like. But they have not seen any signs yet that indicate the budgets will be delayed. Also, regardless of the overall budgets, offshoring spending by clients will be better, the report noted.
Infosys will announce its third-quarter earnings in January 2014. The IT major indicated that the third and fourth quarters are seasonally weak period due to the holiday season. The report said that Infosys will take another look at cash policy at the end of the calendar year. However the immigration bill and the acquisition policy of the company will also influence its decision. Cash figures lower in the list of priorities as currently there are more fundamental things to fix, Nomura said quoting Infosys.