Infosys money, market share to flow into TCS: JPMorgan

“If TCS comes out today and maybe even meets expectations, it doesn’t even have to beat it very significantly, I think you will see money flow towards TCS,” he said in an exclusive interview to CNBC-TV18. He also said market share will slowly start drifting towards other players from TCS because of polarization.

Infosys today shocked the street with dismal Q1FY13 numbers. Its consolidated net profit for the first quarter rose 33% year-on-year to Rs 2,289 crore, while revenue was barely in-line at Rs 9,616 crore, up 29%.

Analysts on average were expecting Infosys to report a net profit of Rs 2,448 crore on revenue of Rs 9,665 crore.

George, who has been tracking the stock closely, says that the IT major has disappointed on several front this time. Not only are the numbers below expectations, but the company has also gone and cut the yearly guidance for dollar revenue.

The stock took a harsh beating right in the beginning, crashing 10%, and has remained around that level.

Below is an edited transcript of his interview with Udayan Mukherjee and Mitali Mukherjee.

Q: Take us through what the likely action on your front would be? Would you take down your rupee EPS expectations and dollar revenue expectations significantly after hearing Infosys?

A: Yes I think we will be taking down our estimates at this point in time provisionally by about 3-5 %. Yes we are disappointed with the revenue outlook. It says at least 5%, but in light of the Q1 performance, it seems that even this might be bit of a challenge. So we will not be surprised if Infosys comes in below that for the year.

Q: Are you surprised that there is been no second quarter guidance or do you have the numbers, because we don’t seem to have them?

A: We too don’t have them. I think what Infosys probably has realized is that their track record in terms of performance versus quarterly guidance has not been really that good now for multiple quarters. In fact, in six of the last seven quarters we found that Infosys has missed expectations and therefore they might have taken the call to suspend quarterly guidance and focus on the annual picture.

This need not necessarily be a very bad thing, because when you are trying to focus purely on the quarter, it can lead to counter-productive actions as well. So I am not surprised that Infosys did that because their track record in the past 6-8 quarters hasn’t really been good on this score.

Q: It seems that pricing is down close to 4% on a blended basis for the company this time around. Do you have confirmation of that and that’s quite a bit of pricing pressure to be facing?

A: Yes, I think there are a couple of explanations for this. One, you have to look at the mix. It seems to me that in this quarter that the mix has moved a little bit towards outsourcing or what we call bread-and-butter offerings. Consulting is down sharply, so some part of the pricing decline can be attributed to mix. Some part can also be because of pricing pressures that clients have exerted.

In any case, we have always made the call that a pricing premium in this industry is something that is not going to endure and players like Infosys who may have had that in certain accounts might see greater relative risk of pricing pressure. So I guess as a combination of these two factors at play might have led to this pricing drop.