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Last Updated : Oct 12, 2015 02:08 PM IST | Source: CNBC-TV18

Revised $ rev guidance only due to currency moves: Infosys

Infosys is "working hard to beat its constant currency guidance", CEO Vishal Sikka told CNBC-TV18.

Stating that the company's revision in its fiscal 2016 guidance from 7.2-9.2 percent to 6.4-8.4 percent was purely due to currency trends, Infosys CEO Vishal Sikka said, adding that the company was confident of meeting its 10-12 constant currency growth target.

Infosys declared a robust set of numbers this morning, with both revenue and profit growth beating analyst estimates.

Speaking exclusively to CNBC-TV18's Kritika Saxena, Sikka said that the company continues to focus on its 'New and Renew' strategy and has been looking to continue its automation drive in order to offset pricing pressures that the IT industry faces.

COO UB Pravin Rao said the company was successful in bringing down its attrition to 14.1 percent and was taking further measures to increase employee engagement.

Separately, CFO-designate MD Ranganath told the news channel said Infosys will focus on maintaining margins at "25 percent, plus or minus 1 percent".

While outgoing CFO Rajiv Bansal did not comment on where he was headed, after putting in 15 years with the firm, only saying that he was exploring "newer challenges" to create more value.

Below is the verbatim transcript of Vishal Sikka, Pravin Rao, Rajiv Bansal and MD Ranganath’s interview with Kritika Saxena on CNBC-TV18.

Q: Can you tell us about your FY16 dollar revenue guidance?

Sikka: 7.2 to 9.2 on June 30 currency, it is that currency change now because of the fluctuations in the currency markets so that is on September 30 terms it is 6.4 to 8.4. On constant currency the guidance is what it has been since the beginning of the year, which is 10-12 percent constant currency growth in revenue.

Q: Just clarification again, you have not cut the dollar revenue guidance in anyway?

Sikka: We have not cut the dollar revenue guidance in anyway.

Q: You hinted that you will look at bucking the trend, so 10-12 percent -- it is a seasonally weak quarter, next two quarters but would you be able to beat that?

Sikka: We are working very hard to beat that, we are endeavouring to beat that but from the financial market perspective we need to be responsible based on what we know. What Pravin Rao and I see today is that it tells us we need to hold our guidance to 10-12 percent. We are not revising it downwards or upwards. We are keeping at what it is but we are hopeful that because of all the works that we are doing we will be able to buck that trend this year and do better. That is where we are.

Q: In terms of attrition it has come down significantly ever since the new management came on board. I think your sweet spot is 14-15 percent, by when can you be able to come because there has been many initiatives that have taken?

Rao: Our quarterly annualised attrition is at 14.1 percent so we are already there where we wanted to be -- around 13-15 percent. In last quarter, it was 14.2, it is 14.1 so we are already in that range. We will continue. It is not that we are declaring victory and all we will continue with various initiatives to continue to engage with people.

We have many initiatives. As part of the initiatives we have launched Murmurations then later on we launched the Hackathon thing then we had this Zero Distance initiative. Now we have the Zero Bench. These initiatives are helping us in the revenue side and doing things better but it is a tremendous tool to engage people better because people are now excited about all the things, all the possibilities and that in a sense is also translating into lower attrition.

Q: Deal win on a total contract value point of view has been significant and that happened in last quarter as well. Will that continue and is there still pressure that you are seeing from the top 10 clients?

S
ikka: The top clients have grown. Our top most clients grew by more than 8 percent in the quarter. Our top 25 clients grew 7.9 in constant currency. Even though we have had a few structural issues with couple of those clients and some of them are in Australia where we had a significant negative currency impact, in the top 25 clients we grew by 7.9 percent on a constant currency that is great. We feel very proud of that.

When we look to the future as Pravin Rao was saying the pipeline, the deal wins give us reason to be hopeful and feel optimistic. We did very well, our teams did very well. We have significantly improved our win rates. We did close to a billion dollars in total contract value (TCV) in the last quarter so we are very excited about that.

We had many large wins. So these will all, as we go forward, start to pay their dividends. We are quite excited about that and overall in terms of Q3 and Q4 we see that seasonal dip but we are working very hard to make sure that we buck that trend.

Q: So, the pressure or the pricing pressure that you were seeing in large contracts is that continuing and how are you trying to mitigate that?

Sikka: I think that downward pricing pressure is an ongoing thing that the industry is going to have to deal with. I have been saying that for the last year. This is a natural course of technology and the way to deal with that is to do it with automation and with software. So, if you look at we had 57 Panaya deals that we did in the last quarter and 53 with Skava. These are all examples where we have gone away from the people only model to a people plus software model.

When you add software to the people, we use less number of people per project, the margin with the software is much higher therefore our margin improves and because of the less number of people our bandwidth improves so that we can do more projects.

You know what professor RA Mashelkar used to say, do more with less for more so that is a virtue of circle that we are attempting to create. You will see while the downward pricing pressure is an ongoing trend, is a secular trend, there is an evidence that --maybe in our performance -- pricing improvement in this last quarter as you can see that we have already starting to see some indications that this is working.

Q: What are your plans after Infosys?

Bansal: I am going to go home, spent some time with my wife and my daughter. Last 16 years has been a long journey at Infosys. My wife has been here for 16 years, put together 32 years at Infosys has been a long journey. It has been a very exciting and a rewarding experience to be very honest. When I was sitting back and thinking about what next for me in life, I realised at 43 I still have 16-17 more years to go and what do I do now? I have done this for three years and what next? And that is the most difficult question for anybody to answer in life, what next?

When I was sitting back and thinking, I said, okay, you have been the CFO, you have done whatever you want to do. It is the dream of every finance professional in the country to become the CFO of a company like Infosys and you have lived your dream. Now, you have to create new dreams. While, you have to create new dreams, you have to live those dreams. When I started talking to the people outside, I realised there is so much more opportunity in the market place today than it was probably 10 years back. There is so much opportunity to create value in this country today and I feel very excited about that.

I honestly cannot tell you where I am going to go from here right now. There are many opportunities that I am looking at and I feel very excited about the conversations and how it is progressing and where it is an I will do something exciting. That is all I can say right now.

Q: Within IT?

Bansal: I will do something exciting.

Q: We keep talking about renew and new has been the strategy, so what are the strategies of the earlier finance management team? What will you carry forward from Rajiv Bansal’s earlier policies and what will be the new strategy that you will implement? Because, of course, we are at an era of change; we are talking digital, we are talking renew and new for pretty much all sectors. What would be the new changes that would be likely and immediate once you come on board?

Ranganath: First of all, I think it is a great privilege to lead a world class finance team. My illustrious predecessors, TV Mohandas Pai, V Balakrishnan and Rajiv Bansal have built a world class team. Finance team has always been at the forefront of innovation in Infosys, whether it was first ever listing of an Indian company in the US, whether it was first adoption of International Financial Reporting Standards (IFRS) by an Indian company or most transparent financial reporting. So, finance team and the finance strategy of the company has already been very solid. There is no need to change anything.

Coming back to your question on the strategy piece, finally what renew and new strategy is all about making Infosys services more competitive in the market. For example, can we win more deals? So, automation is one of the key pieces that are going to play in the renew where we are able to offer a much more superior value to our clients by better pricing on our deals -- not diluting the margins, pricing the deal so that through automation we get the margin as well as at the same time, we are able to win those deals.

So, we are going to accelerate those but in terms of broad financial strategy my illustrious predecessors have created the world’s best finance strategy and I do not want to change anything.

Q: The target margin range for Infosys is at 24-26 percent. You have come in at a time when the next two financial quarters are going to be seasonally weak. Would you be able to maintain that 24-26 percent margin range and by when would you be able to beat that targeted margin range that Rajiv set?

Ranganath: If you look at first two quarters, as you rightly said the margin trajectory has been positive. Even after we take out the rupee impact of 0.7 percent, still we have had 0.8 percent improvement over Q1.

Our focus will continue to be in that range of 25 plus or minus and we have operational levers still. For example, utilisation is just above 81 percent. We will continue to focus on that and as I was saying earlier, when Narayana Murthy came back, we did have cost optimisation which led to the improvement in operating margins of 2.5 percent in over three to four quarters. There are levers, we will continue to focus on and more importantly, accelerating automation is going to give -- if not in the near-term then in the medium-term -- some benefits on margins.
First Published on Oct 12, 2015 11:55 am
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