Need stability on management side of Infy biz: Moshe Katri

“I do not know exactly which inning we are at right now. But it seems that there is more to go in terms of turmoil, especially at a time when there are more competitive challenges for the company in the industry,” he said.

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Below is the verbatim transcript of the interview

Q: The street seems to be quite disappointed with the lowering of the dollar guidance and the kind of margin performance Infosys has turned in. Are you disappointed?

A: It was a disappointing, another light quarter in terms of revenues, margins and guidance reset. What is interesting are a couple of things that did happen throughout the quarter; we did hear from numerous senior managers from Infosys that the company is seeing signs of stabilization. The company that hosts a number of sell side conference calls during the quarter, this is a signal the company is sending out. On top of that, you would have had a pretty nice recovery on the stock, I am not surprised that the stock is down 8 per cent. The stock trading roughly about 15 times earnings is not cheap. Also, there was an announcement that Balakrishnan is being reassigned and you still do not get a feeling that the turmoil at Infosys is over.

I do not know exactly which inning we are at right now. But it seems that there is more to go in terms of turmoil, especially at a time where there are more competitive challenges for the company in the industry.

If you look at the numbers specifically, they are not bad. We have seen a decent sequential uptick in Europe and in North America and the new client wins. I think there were 39 wins last quarter with maybe 50-51, the numbers are fine, but they are not great.

It will be interesting to see what the management says about guidance. A lot of people are assuming that the guidance here is not organic. We need to get some more details on that, and maybe, we will have to listen to what Balakrishnan has to say.

Q: Infosys has announced wage hikes after a long time but the current quarter’s EBIT margins are down 170 bps quarter-on-quarter (QoQ). That has come as a surprise for a lot of analysts, are you surprised at the margin worsening?

A: In the past quarter, a lot of people looked at margins and price realization numbers and they thought that the reason why they were down had to be predominantly with the pricing pressure.

What we found is that there is a very significant correlation between margins and pricing, and what drives revenue growth.

In our view, European revenue growth or European revenues will generate much better margins compared to North America based revenues. This is what drove discrepancies in price realization last quarter.

I am assuming you will also see the same thing this quarter as well. Probably, I am assuming Europe grew faster than North America; that is the case that may explain why margins were down. But again, your question is very valid, what we probably need to get some more data points on what drove margins lower.