According to managing director of Cowen & Co Moshe Katri, Infosys’ guidance this time round was disappointing. “This company needs to change internally, whether on the sales execution side or maybe in terms of how to communicate with their customers, in order to see better results down the road,” he said in an exclusive interview to CNBC-TV18.
He goes on to say that while the company’s focus on higher margins is good, it restricts their ability to reinvest in the business.
In the IT space, his top picks are Accenture and Cognizant. “We like their competitive position, like the fact that they continue to reinvest in the business and they definitely have a strong competitive position in the market vis-à-vis the other players,” he explained.
Below is an edited transcript of his interview with Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video.
Q: Are you disappointed with what they said about volume growth, revenue growth and even EPS in dollar terms?
A: Focus was predominantly on fiscal year 2013 guidance and the stock action currently reminds us exactly what happened last quarter when the stock was also down roughly about 10%. So disappointing guidance, not too much transparency in terms of what is exactly known on, so I guess we will have to wait for the management to provide some more details
Going back to the conversation we had exactly a quarter ago, we were concerned about the company’s strategy in terms of the global markets. In fact, they have been very stringent in terms of running the business by focusing specifically on maintaining best margins in the industry. That is not a bad thing, but on the other hand that takes away a lot from the flexibility to reinvest in the business and being able to group.
A lot of people thought that the guidance will be below NASSCOM’s expectation for the sector, just given the fact that historically Infosys always said that it will grow faster than the industry. So there is actually a disconnect here and I guess it will have to get some more colourful management in terms of the various different moving parts that contributed to this guidance.
Q: Is there anything that you are picking up in terms of whether they are having a much larger problem in terms of either ramping up their existing projects or getting new clients? What are you picking up from the market in terms of what the problem is for Infosys right now?
A: Accenture, which is significantly larger than Infosys, came out with a strong quarter and they actually raised guidance for the fiscal year. Infosys has historically modeled itself wanting to become India’s alternative to Accenture, but they are coming out with these numbers in terms of guidance which tells us something about their competitive position. I don’t think this is something that’s unsolvable.
Look at Wipro; Wipro had some issues a couple of years ago, they went through structuring and I think they are gradually getting out of that. Infosys will probably have to go through the same thing. I don’t disagree that Infosys’ problem seems to be company specific issues. This company still has very strong brand name recognition globally and in India, but something has to change internally whether on the sales execution side or maybe in terms of how to communicate with their customers in order to see better results down the road.
Q: What is your top pick right now in terms of Indian IT companies the ones that represented in the market over here?
A: Our top picks into the quarter are Accenture and Cognisant and we continue to feel that you definitely have to be a bit more selective when you are looking at the group. If you look at Accenture’s stock, it’s outperformed every single tier one offshore vendor year to date. Cognisant is probably the second performer, better outperforming names. These are the two names that we continue to focus on.
We like their competitive position, like the fact that they continue to reinvest in the business and they definitely have a strong competitive position in the market vis-à-vis the other players.