The financial year has begun on a sour note for Infosys, India?s second-largest IT services exporter, be it revenue growth, profitability or outlook. Despite the gloom Infosys CEO & MD SD Shibulal said the company will continue to make investments in areas that will lead them to higher growth, in an interview with PP Thimmaya & Debojyoti Ghosh. Edited excerpts.
How do you see Infosys faring in the new fiscal?
For FY14, our deal pipeline looks robust, but the overall environment is very volatile. There are demand and pricing issues, so the signals are very mixed. We have given a very safe guidance of 6-10% and have decided not to give EPS guidance for the time being.
Will the volatility continue for Infosys?
One must understand that the signals are mixed. On the one hand PC sales are falling, which would mean that there is less consumer spending. On some other days there are positive news points like the housing market in the US improving. For Infosys, revenue growth of our clients is slowing down, so we took a safe view of our guidance given our portfolio and environment. This volatility will continue unless growth picks up in the global markets.
Has the 3.0 strategy of Infosys attuned to this volatility?
In the second half of FY13 we have won $960 million of large and transformation deals. One has to look at this conversion rate. These projects have started to ramp up creating all around growth. We are firing on all cylinders, and I do not think there is any need for any mid-term review of this strategy as the execution has started, and results should show up in medium to long term. Here, acquisitions will be key and we are active in this space though closure is not predictable. We are comfortable with more larger acquisitions in areas such as consulting, products & platforms and Infosys Public Services in the US.
Will Infosys be under pressure on operating margins front?
Margins are under pressure for various reasons. We are entering a period of low growth and there are certain headwinds we are facing like the commitment of $140 million additional wages, the impact of Lodestone acquisition etc. However, there are certain other unknowns for us like lower revenue productivity, the extent of sub-contracting we will have to take up as we do not know what percentage of visas will get converted because of oversubscription. Lastly we will have to make investments.
What kind of investments will Infosys undertake?
We will make investments in the areas of clouds, mobility, products & platform, among others. We will continue to develop IP, file patents and monetise our ideas. It took us 15 years to build Finacle (the banking solution) and in the new environment it will take us five to seven years. Our immediate challenge is picking up growth and for that we have to make the right investments. This is the reason for not giving the EPS guidance as we do not want to make any compromise on investments which will lead to growth.
How does one view Infosys vis-?-vis the Indian IT industry in the current circumstance?
One cannot just make an apple to apple comparison and there is a need to consider the portfolio differences. We are making investments that are going into products and platforms. We have received several recognitions for what we have done. The $685-million total contract value booked for our product and platforms is an early indicator of our future growth. There are many bright spots for us if one looks at the second half performance of FY13. Client addition has gone up, number of million dollar clients has risen. Acknowledgement from clients is very good and we are seeing results.