Clients budget likely to be down by around 8%: Infosys

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SD Shibulal, COO, Infosys , who recently returned from the CLSA Las Vegas Conference, said the company is in conversation with all of its customers. He said budgets for many of its customers are yet to close. "There is a common feeling that the budgets will be down this year, possibly in the range of about 8% plus or minus on an average. We are expecting that by end of March, we will be in a position to give guidance for next year."

 

Here is a verbatim transcript of the exclusive interview with SD Shibulal on CNBC-TV18. Also watch the accompanying video.

 

Q: By this time you would have had a fairly concrete idea of how Budgets are freezing up for the year but this year is different, is there still quite a bit of uncertainty surrounding where Budgets will be frozen this time?

 

A: We have about 580 customers; we have been in constant conversation. We are seeing that the Budgets are for many of our customers are yet to close. There is a common feeling that the budgets will be down this year, possibly in the range of about 8% plus or minus on an average. At the same time they are saying that possibly the budgets will close by the middle of March and we are in constant conversation with them. At the same time they are saying that their interest in Infosys, as well as in offshore will continue strongly.

 

Q: I believe you also indicated that some of these customers are demanding price cuts of between 5-15% and Infosys is working out some kind of one time, one year pricing agreement just walk us through that?

 

A: There are multiple price in discussions. If you look at our last two years you can see that we have got price in increase. I believe we have got about 8% price in increase over the last two quarters, minus the last quarter, where we had a price decline of 1.8% and some of that was because of the onsite-offshore mix change. We are having price discussion with the same set of customers. The point they are making is in good times we have given you price in increase and times are really tough now. So, you should give us price in relief. So, we are now looking at converting that it into one of the following; one possibility is to do a price in relief for a certain of period of time for FY09. Second is to increase the longevity of the contract. So, get a longer contract whereby we will get some relief on the sales expenses and give some relief on the pricing, or link it to volumes discount or engage the client in one of the new engagement model, which is based on non-effort based of pricing models, which will convert their fixed cost into two variable cost. So, we are looking at those 3-4 different options, when we engage with the customers.

 

Q: Very different kind of data points are coming to the fore now from your sector. You are saying that possibly there could be an 8% cut in the Budgets give or take couple of percentage points either way. Your peer Cognizant says the revenue for this calendar will grow by at least 10% and National Association of Software and Services Companies (NASSCOM), the industry body is still guiding 14-15% growth for the sector. How do these all sit together?

 

A: When you look at that and what is important for us is our client base because that is what will determine our growth, our trajectory for the next year and we are in constant conversation with them. So, as I said while they are talking about the reduction in the Budget, they are continuing to say that their interest in Infosys, as well as in offshore business will continue to be there and there will be strong interest. At the same time they are facing serious challenges, there is leadership change, ownership change, Budget uncertainties which means that the velocity of the business has come down over the last three months. There are delays in decision making; even after the decisions are made there are delays in ramping up. So, we are looking at all these factors and we are expecting that by end of March, we will be in a position to give guidance for next year. 

 

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