Infosys will continue to invest more in continental Europe market, as it sees great potential for growth in this market, says S D Shibulal, chief executive officer and managing director, Infosys.
The client's ability to take long-term decisions continues to be challenged because they need clarity on the environment. They need to know how environment is going to turn out in next 1-2 years
MD & CEO
Infosys will continue to invest more in continental Europe market, as it sees great potential for growth in this market, S D Shibulal, chief executive officer and managing director, Infosys told CNBC-TV18 today.
"Only 10 percent of our revenues now come from continental Europe, and we expect the share of revenue from this market to increase as it is getting open to new models," Shibulal said.
The Bengaluru-based company had acquired a Zurich-based Lodestone Holding in current financial year for 330 million Swiss francs ( Rs 1,925 crore), to strengthen its consulting capabilities.
Shibulal however continued his cautious stance on spending and decision making by clients in the key market US. The company had no plans discontinuing its practice of giving yearly guidance; Shibulal said replying to market rumors. The company had stopped giving quarterly guidance from the first quarter in the current financial year due to unstable global situation and dull quarterly earnings.
Below is the verbatim transcript of SD Shibulal's interview on CNBC-TV18
A: The client's ability to take long-term decisions continues to be challenged because they need clarity on the environment. They need clarity of how environment is going to turn out in next 1-2 years which is not there. We continue to see that clients are taking longer time for decision making. They are taking decisions which can be revisited in the future and their ability to make long-term investments is low.
Q: Consulting in systems integration which is a third of your revenues depend on discretionary spends, is there no material pick up in that segment?
A: The world has not really changed, we said that in the beginning of the quarter and want to repeat once more. Consulting in systems integration is a space where it is discretionary, that happens when people have ability to spend on new things, whether it is entering a new country or launching a new product. We see differences in different verticals when you look at this. For example, in retail we are seeing traction for consulting in system integration because they are moving ahead with their digital strategy.
In financial services, it is tough because they are not launching new products. They have not identified new growth engines for themselves. In manufacturing, we have a very large presence in consulting in system integration because they use it as a way to drive efficiency and productivity. We see this difference in different verticals, but overall, the ability to take discretionary decisions is still low.
Q: What is your view on the situation in the US markets because the recent data shows that the recovery has gained ground despite the uncertainties? Brokerages like Credit Suisse have turned quite optimistic on the IT sector citing the US macro improvement, would you concur?
A: The uncertainty is there and it does impact their ability to take decisions and especially long-term decisions. It does impact our clients.
A: As far as Europe is concerned, there are two parts. We have chosen Germany, France, Switzerland, Belgium and Netherland for investment and have done an acquisition in continental Europe and just did the Lodestone acquisition.
Our strategy for Europe is long-term. As a revenue share, we get about 10 percent of our revenue from continental Europe. We believe that in the long-term, it can support a much bigger revenue share for us and that is the philosophy behind which we are investing.
We had set up front offices in Germany and France before, Germany did extremely well. If you look at last two years, France last year grew marginally but the previous year it did well.
We have the potential to grow in continental Europe because our revenue share in continental Europe in terms of percentage is small, there is only 10 percent of our total revenue.
Secondly, the continental Europe is getting more open to some of the new models because when you are in a challenging environment, you look at new models to make sure that you save cost. So, it is becoming more amenable to some of the new models and therefore we will continue to invest in continental Europe.
A: All these issues get discussed in the board meeting occasionally, until last year we used to give annual and quarterly guidance, this year we have not done quarterly guidance. At this point, there is no decision to change anything but these are things which will get discussed in the board meeting.
Infosys stock price
On August 31, 2015, Infosys closed at Rs 1095.20, down Rs 15.5, or 1.4 percent. The 52-week high of the share was Rs 1186.00 and the 52-week low was Rs 798.21.
The company's trailing 12-month (TTM) EPS was at Rs 53.73 per share as per the quarter ended June 2015. The stock's price-to-earnings (P/E) ratio was 20.38. The latest book value of the company is Rs 209.27 per share. At current value, the price-to-book value of the company is 5.23.
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