Infosys retains clients, paints bleak demand environment
Interim CEO Rao said that the company had not seen anything unusual in the two-three weeks since Sikka’s exit and Nilekani's return as non-executive chairman.
The Bengaluru-headquartered company was facing the prospect of clients reconsidering their spending with the company after Sikka’s exit from the company. ET had reported that the company’s sales team was paralysed for the week after his resignation.
“Many clients said they were sad to see Vishal leave but they have said that these relationships last beyond individuals. In some cases, our relationships go back decades. Once we gave them assurances about the continuity of strategy, they were comforted,” UB Pravin Rao, interim CEO at the company, said.
Rao added that the company had not seen anything unusual in the two-three weeks since Sikka’s exit and the return of co-founder Nandan Nilekani as non-executive chairman.
“We have three weeks left to the end of the quarter and we are focused on execution,” Rao said.
Infosys also painted a bleak picture of the demand environment.
The company had expected demand from banking and financial services clients, which contribute the biggest chunk of its revenues, to begin to grow. That has not happened.
“We have not seen changes from the start of the quarter. We have not seen the demand pickup in financial services. Demand continues to remain moderate,” Rao said.
He added that the company doesn’t expect energy companies to show a pickup in spending and that retail, another large client segment, remained volatile. Continued muted demand might require Infosys to rework its full-year guidance. The company expects growth of 6.5-8.5% in constant currency.
Rao said investors would have to wait until October, when a promised strategy review will be disclosed, for more details on a range of factors including a possible new guidance philosophy.
“Strategy is not static. It will evolve. We will have to fine-tune some parts that may not be working but the overall direction of our strategy remain,” Rao said.
But Infosys did say it would continue to defend its margins – expected to be within a range of 23-25% -- despite investing in new businesses. The company has five margin levers, CFO MD Ranganath said, and it maintains a ‘laser sharp’ focus on them.
“In the renew part of the business, we have to be competitive and that means we have to look at our costs. All these cost optimization measures were not at the cost of growth,” Ranganath said. He added that the company’s investments had already been factored into its margin range.