Given that it has turned in a disappointing set of numbers yet again?revenues up just 2.6% q-o-q and Ebit margins down 160 basis points q-o-q?it?s clear Infosys is not the company it once used to be. While there?s no doubt the environment is tough and the competition keen, peers like TCS and Accenture seem to be coping far better. Accenture reported impressive bookings in the three months to August as also strong outsourcing revenue growth, while TCS exceeded expectations on revenue growth in the June quarter driven by robust volumes. So there appears to be some degree of polarisation in the performance of IT companies, with a few outliers able to deliver even in these difficult times while the rest of the pack grapples with falling demand.
For its part, Infosys should perhaps stop giving any indications to the market on how it expects to fare till it has a better handle on its business; constantly revising, especially lowering, the revenue or earnings guidance doesn?t help anyone. TCS desists from giving any kind of guidance and this strategy, it would seem, has left it less pressured than Infosys. This time around, Infosys has lowered the revenue guidance, in constant currency, to 5.7% and the earnings guidance for FY13 to $2.97 from $3.03, an indication of its inability to read the market conditions as also to compete. Analysts have also pointed out that the Infosys management needs to focus more on defending its market share and growing it rather than on sustaining margins; in the past, the tech major has always wanted to hold up margins rather than pare prices. It?s possible the difference in the valuations commanded by TCS and Infosys will widen with TCS commanding a bigger premium than it does now, of about 20%, but that shouldn?t bother the Infy management. Having yielded the top slot to TCS, the Infy top team?s focus now should be the business, the objective being to win more deals. And also to make sure it has the necessary management bandwidth; perhaps some additions to the top team are warranted. In this context, the current CFO V Balakrishnan?s decision to head the BPO operations, Finacle and India operations?crucial to Infosys?s 3.0 strategy?suggests he is being groomed to take over from the incumbent CEO. Even if there are other equally eligible candidates in the fray, it doesn?t hurt to nurture another; heading these businesses constitutes running and managing a P&L and Balakrishnan can only benefit from the experience.
