India’s second-largest IT services exporter, Infosys, revised its revenue growth guidance for the third time in a row in the current fiscal dampening the expectations of the market. The year 2017 will be a challenging one for Infosys as it awaits the policy outcome from the Donald Trump administration in the US, which is its largest market. In an interview with FE’s P P Thimmaya, Infosys CFO M D Ranganath says it will be important to grow some of its key clients and focus on the execution of company strategy in important markets. Excerpts:
How do you see the overall business momentum?
If you purely look at this fiscal even, Nasscom has bought down the revenue guidance. Some of our peers are more or less aligned to this industry growth rate. However, looking beyond fiscal 2017, it is important to see some the signals from the US where there is talk of the new administration going to make regulatory changes in terms of making it easier for companies operating there. There is talk about taxation, interest rates going up etc which will result in banks having better margins and more money to spend. The US stock market is at an all time high post elections, and the dollar has strengthened. We have to see how much of these expectations translates into business outcomes in the coming months.
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Has Infosys started to derive benefits from its automation strategy?
It is too early to say. I think to realise the automation benefits it has to start reflecting on profit and loss statements and the hiring pattern. For example, if the revenue growth grows faster than the hiring that is when we can confidently talk about automation benefits. One leading indicator which we have been watching has been, the net headcount. In the first nine months of this fiscal, we have added 5,700 people into the company, last year for the same nine months we had added 17,000. This is substantial reduction. Of course through automation people are getting released out of the projects and moved into others. However, we want to see whether it is a leading indicator, trend or an aberration. It is too early to say.
What is your view on Infosys’s operating profit margins?
In October last year, we clearly said for FY17 it will be in the range of 24-25%. In the first nine months of this year the margin was 24.7% which is pretty much at the higher end of that band. It is also exactly what we had at the same time last fiscal. This fiscal we are comfortable with this band and most likely are going to end in the higher end of the range. In the medium term our expectation is 24-26%.
How is the pipeline of deals considering the fact that a large number of multi-billion dollar deals are coming up for rebids this year?
Typically the third quarter of the fiscal is the last budget quarter for the clients when there is little bit of softness. In the third quarter we had around $600 million plus deals. Clearly renewal deals are there, some of which we are already working while many others are new. Large deal wins are important for us because these give us some kind of annuity revenue. At the same time, growing some of the key clients is also important.
Is Infosys able to get higher prices in new areas such as digital?
The new kind of deals are clearly price positive. Typically the propensity of the clients to pay is higher. It is in the traditional services where we have to offset pricing decline through automation and productivity improvement. On year-on-year basis, we have seen 1-1.5% pricing decline, and that is what it has been for the entire industry.