Vishal Sikka may lower Infosys’ revenue guidance once again, warns of bigger problem areas

CEO Vishal Sikka may lower Infosys’ revenue guidance for fiscal 2017 yet again. Sikka informed about the decision following a slowing demand environment for software services and the negative fallout from the British exit from the European Union.

"I can tell you that the second quarter will be better. But we are seeing some risks that could lead to a downward revision of the guidance because the environment has worsened as we have gone into the quarter," said Sikka.

Infosys had lowered its revenue guidance in July as well, claiming under-performance in some parts of the business.

This year, Sikka is warning of bigger problem areas.

Meanwhile, this has left analysts wondering about the industry.

Apart from Infosys, TCS, Cognizant, and Mindtree also lowered their guidance twice this year.

"It was bad that it was BFSI (Banking, Financial Services and Insurance) that was struggling," an analyst at a Mumbai brokerage who tracks the software services sector told ET, adding, "But now they seem to be saying that other segments are not doing well."

Infosys had cut its FY17 guidance in July to 10.5-12 per cent in constant currency terms from the 11.5-13.5 per cent it had projected at the end of the last financial year.

The National Association of Software and Services Companies is widely expected to cut its industry growth guidance of 10-12 per cent growth in FY17 towards the end of the calendar year.

"We believe Infosys will lower its revenue growth guidance by at least 150 basis points to 200 bps and possibly err on the side of conservativeness as it may not want to cut numbers a third time in an uncertain macro and industry environment," Girish Pai, analyst with Nirmal Bang, said in a note last month.

"We do see challenges in BFSI but not near the level that the other guys have talked about. I think all of us tend of overstate macroeconomic factors. We have such tiny amount of client budgets and IT spends that there is lots of room for growth," said Sikka.

Meanwhile, Infosys was also questioned over revenue productivity.

"The cost pressure has outpaced our productivity improvements and we need to find our escape velocity to get ahead of that," Sikka said.
He also ruled out the possibility of large acquisitions that would help power annual revenue from under $10 billion currently to $20 billion by 2020.