Infy lost focus, lower $ revenue growth a setback: analysts

Infosys has revised its constant currency guidance revenue from 11.7-13.7 percent for FY17 to 10.5-12 percent.The earnings have not been able to satisfy market expectations as global headwinds have impacted the revenue growth of the IT giant. In an interview to CNBC-TV18, Karan Tolani of Daulat Capital said that revenues are a disappointment and below our estimate of 3 percent growth. "Brexit impact is higher on Infosys than TCS," he added. Growth margins have also taken a slight knock of 140 bps to 24.1 percent for first quarter of this fiscal year.Independent industry expert Moshe Katri however is not worried about the margins right now.  "Infosys' objective was to generate consistent returns and good numbers. The execution side has been decent, but they lost their focus. They have to maintain their numbers," he said. The volume growth is down to 2.2 percent from 2.4 percent and the attrition rate is up to 21 percent from 17.3 percent in Q1 of FY17 on a Y-o-Y basis. Nilesh Shah, MD & CEO of Envision Capital maintained revised dollar revenue growth guidance to be a major setback for the company.  "The important variable (dollar revenue growth) of the result has fallen, and it is not a good sign for company, the sector and the entire earnings season," he added.Karan Taurani, Dolat CapitalLatha: Your thoughts on the numbers so far?Taurani: The revenue is definitely a disappointment and it is below our estimate. However, our numbers in terms of expectation was anyways lower than the street, so we were anticipating a 3 percent dollar term growth versus a street estimate of about 4 percent odd. Quarter one he already pointed out that it will be a weakest quarter because of lifescience and healthcare not doing well.In terms of going ahead quarter two we expect some kind of recovery in growth but the Brexit impact will be major for Infosys because the reason being they have had about 4 percent growth in the last four quarters on an average from the European markets. So, European markets has outperformed the US market for Infosys, so going ahead you might see some kind of negative impact because of Brexit on Infosys specifically. Moshe Katri, Independent Industry ExpertSonia: This looks like a miss on most fronts. Volume growth below estimates, they have cut their constant currency revenue growth guidance for the full year. The internal parameters whether it is even attrition rate has gone up. How have you read into the number because the stock is almost down 10 percent now?Katri: I would say couple of things. We spoke about this in the morning post Tata Consultancy Services (TCS) numbers and we also had a conference call this morning with a company called ISG which is kind of an intermediary that helps enterprise buyers buy IT and the commentary from ISG and the numbers from TCS suggests that the transformation away from legacy to digital is going at full speed. You are to see cannibalisation of legacy services and that accounts in my view for part of that slowdown that you are seeing. TCS is getting impacted. Infy, Wipro, Cognizant this is an industry wide phenomena and this is a multi year cycle and at this point all these companies are going to aspire to work centres today which is probably the only legacy player that has been able to make that full transition or a significant part of that transition from legacy to digital. So, I don't know if this should be a huge surprise.On top of that if you recall Infy COO during intra-quarter kind of indicated that there may be some bumps along the road in terms of the quarterly numbers. So, maybe that was a hint that maybe they are seeing some sort of an issue given the macro volatility that we have out there and then going back to the fact that they did guidance lower. That is probably something that a lot of companies should do especially given what happened with Brexit and the potential impact during the next few quarters. Nilesh Shah, MD & CEO, Envision CapitalSonia: What about you? Disappointed?Shah: That is not really the best of starts to a year like this especially when in the first quarter the revenue momentum is expected to be very strong. Maybe if there was a miss on the margin that would have been fine but a miss on the revenue growth I don't think is the best way to start the year at. But as we discussed earlier what we really need to watch out for is basically the guidance for the full year. Because you could just have one client who would probably postpone revenues or shifted work to the next quarter. So, we need to find out of there were any of those factors at play. Rahul Jain, Systematix Shares & StocksLatha: You have all the numbers and statements in front of you. Your thoughts?Jain: For us, it is not very different, because as a matter of contrary we were positive on TCS versus Infosys all throughout. Our estimate for the full year was 12 percent growth which was earlier towards the lower end of the band and now, it seems like towards the upper end of the band and may move a little bit down. So, in a way, it is coming as we were anticipating and we were a little different here and it seems it is falling on those lines.Reema: How would you change your EPS estimates considering they have lowered the guidance? Would there be a change in your valuation multiple that you ascribed to Infosys?Jain: The industry has come with the reality of the new growth rate which is around 10-12 percent. So, there is not much room in terms of rerating, derating, per se. There could be a small opinion here or there or about one multiple here or there, but the growth rate’s new reality 10-12 percent margin maintenance around 25 percent, this is what the two top companies are aspiring for which they should do. It is more now become a point of where the risk reward is favourable which in this case was clearly with TCS with low expectation and can deliver good number versus Infosys, where expectations were high and possibility of disappointment was always there. So, that way, it has definitely played favour of TCS which we were trying to push. As far as EPS is concerned, we may do a small tweak, but any which way, it has come up to our expectation. So, I do not see we need a major revision from here.