Buyback was never under consideration: Infosys

The company's first-quarter operating margin fell 100 basis points to 29.9%. "The margin decline has been on the back on visa and employee costs," Balakrishnan told CNBC-TV18.

Infosys, India's No.2 software services exporter, cut its sales outlook for this fiscal year amid worries clients will reduce spending on outsourcing services due to global economic uncertainty, sending its shares down 10%.

The company was expected to cut its US dollar revenue guidance following the sharp depreciation in rupee to the dollar. But it shocked the street with a forecast of just 5% growth in USD revenue growth for the full year, sharply lower than its earlier guidance of 8-10% growth.  It now expects its USD revenue will be at least USD 7.34 billion this year.

In another surprise move, Infosys has not provided guidance for the second quarter, citing an unclear client spend environment. “We have had sporadic price negotiations from clients in the first quarter,” said SD Shibulal, MD & CEO of Infosys, adding “will start giving quarterly guidance when situation stabilises”.

Shibulal said lack of confidence among clients remains the key issue.

In the first quarter, its USD revenue rose 5% to USD 1.75 billion, which was also lower than its own and street forecast of USD 1.77 billion. The Infosys management expects quarterly movement in revenue to remain volatile ahead.

Infosys said it expects sales in the fiscal year ending March 2013 to grow by 5% to USD 7.34 billion, below its estimate in April of 8-10% growth.

Though the company exceeded its revenues forecast in rupee terms, it failed to meet dollar revenue guidance of USD 1,771 million to USD 1,789 million for the quarter. It had expected its rupee revenues to be in the range of Rs 9,011 crore and Rs 9,100 crore for April-June 2012. “We have lost USD 13 million on currency fluctuation,” the Infy top brass said. 

Shibulal said the company has not incorporated any wage hike in Infosys for now.  "We will revisit the decision to give wage hikes if any in October," he said.

Meanwhile, speculation about Infosys' Rs 2,000 crore buyback plan can be put to rest as the management dismissed all rumours and said that the share buyback was never on the cards.

However, the company stressed the importance of inorganic growth and said it is still scouting for acquisitions.

Below is the edited transcript of the interview.

Q: You have suspended the second quarter guidance, is it a permanent suspension of the quarterly guidance from here on?

Shibulal: Let me start with the current quarter. Given the environment, I believe that we have done fairly well. On year on year basis, our dollar revenue has gone up by 4.8%. We have met the EPS guidance. Our volume has grown up by 2.7% and we have added number of new clients this quarter. If you look at the current quarter revenue, in constant currency terms we achieved USD 1.78 billion.

We had two events; firstly we lost USD 13 million because of the currency. We took a one time write-off of accrued revenue as a matter of prudence on a large transformational program, which got cancelled this quarter in Europe. So that is another USD 15 million. Our revenue ended up at USD 1.752 million. This is a one time event and the client is still with us. In constant currency terms we have degrown by 0.4% and that is where the revenue ended up.

If you look at many of the other areas from a strategic direction we are doing well. We have added 10 new clients in products and platform; we had four large deal wins this quarter. One of them is above USD 300 million. We had four transformational wins this quarter. Overall from a strategic perspective we are executing or building tomorrow’s enterprise in a very difficult environment. We have made the choices, we believe it is a marathon, it is not a sprint but we are executing to that strategy very clearly.

Now coming to the guidance, we are definitely live in a very volatile environment, look at the US for example, look at the consumer confidence has come down again and also look at the Europe. Between April and today, if you look at the events, which have unfolded, we could not have predicted many of those events sitting in April especially in the financial industry.

In the Gartner report the IT spending growth has been cut down to some 3.1% to 1.3%, if you look at the TPI index 35% of the large deals have been taken off the table in Q1. In fact if you look at a billion dollar plus, it is 85% of the deals have atleast been delayed. So, we are definitely in a very uncertain environment. Hence for the time being we have taken a decision to give away yearly guidance atleast 5% growth for the year and not have a quarterly guidance for the time being.