All eyes are on Infosys as the company will be reporting its fourth quarter numbers later in the day. Moshe Katri, managing director Cowen & Co feels it will be an uneventful quarter for the company with USD 2.2 billion revenues and 44 cents in earnings per share (EPS).
Below is the verbatim transcript of Moshe Katri's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Sonia: Infosys numbers will come after a couple of disappointments that we have got this quarter from the likes of Wipro and HCL Technologies etc., what is your expectation of what Infosys could deliver and more importantly what the FY16 guidance could look like?
A: I would say the disappointments of some of the other companies, some of the other peers in the space are not necessarily that the pricing given the fact that what we have seen early this year budget delays by about three to four weeks. Typically when that happens, we see less fresh new dollars, the project start and project cramp tends to be kind of slow and this is why you have seen pretty much muted result even if we exclude the impact of currency for HCL, Tata Consultancy Services (TCS), Wipro etc. So it is not a huge surprise but on the flip side of it because the budgets are here, because we are seeing enterprise customers making decisions and we are expecting June and September to be much better than what we have seen so far in the March quarter.
In terms of Infosys, we are looking for an uneventful quarter, USD 2.2 billion in terms of revenues, 44 cents in earnings per share (EPS). I think the numbers are across the board and pretty much that’s the consensus. The things to focus on will be fiscal year 2016 guidance. We are expecting constant currency revenue guidance to see an uptick in terms of growth versus what we got originally for fiscal year 2015 in the range of 7-9 percent. We are going to see an uptick on both below and upper end of that range by either 100 to 200 bps and on top of that we are going to work for any sort of signals for new contract wins. We are aware that the company did earn a preferred vendor status with the number of Fortune 100 companies in the past six months. This is definitely a step in the right direction.
The last thing to focus on is going to attrition and we are assuming that that number which looks very high, about 20 percent will gradually come down given some of the initiatives that this company has taken in the past six odd months.
Latha: The new manager Vishal Sikka has spoken about extreme automation using technologies like artificial automation. Is there anything in the management speaking that you will watch out for on these and other lines?
A: It is a process that Infosys and other companies in the space have to go through - reinventing their solutions, adjusting their service line and the skill base to where we are in the technology cycle. What Vishal was talking about is more in the context of how does Infosys compete more effectively for digital related work or social, mobile, analytics and cloud computing (SMAC) related work. So this is important but it is a work in progress across the board for every single vendor in this space.
Sonia: How does one approach the top tier IT companies now in terms of stock and the valuation performance because this year so far Infosys is up almost about 8 percent odd while the other heavyweight TCS has lost about 4-54 percent. What would your pecking order look like?
A: There is definitely contrast here because Infosys is being positioned as restructuring/turnaround story. Infosys is getting grace period of ex amount of months or one year for the new CEO to make a change or show a change.
TCS, some would argue, has had some weaker result in the past quarters and this is why you have seen that on the performance. So you have a market that will give a grace period for restructuring stories. I think this is what is Infosys enjoying and then you have Cognizant that has been very good performer year to date given the fact that it seems that the company has made some very smart moves into the healthcare vertical. So hopefully that helps but that’s how the market is looking at these names and Wipro is a company that has been promising for about year-year-and-a-half to show better topline growth given the fact that they have been winning new deals but that’s yet to happen. So the stock has been punished in the past few days given the fact that we haven’t seen that taking place in terms of actual result and guidance.
Latha: Are there any stocks other than Infosys that catch your eye probably because of valuations or probably because of things happening in Indian companies?
A: In my universe the fastest growing companies are companies that focus more on product development and product engineering. In India that would include the likes of KPIT Technologies, Mindtree etc. The guys that I cover are companies that are doing exactly this kind of work but they are getting it done out of eastern Europe and these are companies that are charging much higher bill rates compared to some of the Indian players and people are willing to play those rates because they are providing very different value proposition to the buyer.
Sonia: Coming back to Infosys. A lot of the companies in the quarter gone by have spoken about increasing their investments and that has resulted in dilution of margins. Vishal Sikka in any case has been talking about the new and renew strategy. How much investments do you think Infosys will have to make and how much do you think that could dilute their margins. What are your own expectations?
A: Infosys has been making investments for about three years now. I do not think Vishal is saying anything new in terms of the need to invest. However, when they talk about investments they are talking about IP, a whole new set of skill base and that’s what we are talking about and I believe Infosys has been doing this gradually in the past few years. I do not think Vishal is introducing anything new to the equation. He is just continuing what we have seen going on in this company for a couple of years now. So I do not expect any significant dilution in margins. We have seen already the traction in margin that Infosys from north 30 percent level to somewhere in mid 20s and it seems that this is what we are going to be at least for now.
Latha: When you spoke to us about what you will watch out from the guidance above 7-9 percent mark and you will watch for attrition. What will you want to hear in terms of deals?
A: I think a lot of it has to do with how the company is doing. They have to structure the sales force, change a bit of market. They are focusing on some of the large companies, the Fortune 100 companies where they have lost ground in the past few years and all this will be very critical in terms of getting the company back to industry in the next few years.
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