Infosys shares fall 4% fearing business 'bumps'

A file photo of Chief Executive Officer of Infosys Tecnologies Vishal Sikka and COO Pravin Rao 
The share price of information technology giant Infosys on Thursday dropped four per cent after the company, said it was expecting “short-term quarterly bumps” in some key sectors that it had not anticipated at the beginning of the year.

Addressing the Citi India Investors Conference on Wednesday, Chief Operating Officer (COO) U B Pravin Rao said the company remained confident of meeting its earlier revenue growth forecast of 11.5  to 14.5 per cent for FY17, but was not anticipating some slowness in certain segments.  

“Things have not dramatically changed than what we had when we set the guidance… But at the same time, given the volatile nature of our business, given the propensity of our business to react immediately to some of the volatility, we’ll expect some short-term of quarterly bumps,” said Rao.

The share price fell 4.27 per cent to Rs 1,185.45 at the end of the day’s trading on the BSE. This is said to be the biggest drop since August 24.

Rao said among the key sectors, financial services looks good, though there are some challenges pertaining to the insurance segment.

Among others, even though there is a recovery in oil prices, this is not much reflecting in demand from the energy segment, which continues with deferment of projects.

In telecom, there was some recovery in the fourth quarter of FY16, which the company expects to continue in FY17.

The real challenges are expected from the crucial retail, and health care and life science segments.

In retail, Rao said, the March quarter financial results of most companies in the US and Europe were the “poorest” in recent times. This could impact demand from the segment, though at the beginning of the year, the company was optimistic.

“At this stage, we don't know how Retail will react but that is something we have to wait and watch.”

In health care and life sciences, he said, the company is seeing some headwinds primarily because of patent expiry and weak pipeline by companies operating in this space which has started resulted in sudden “great deal of pressure on cutting costs”.

And in addition, there are some M&A activities which are also resulting in some (project) deferment. So that is something we did not anticipate at the beginning of the quarter,” added Rao.

Healthcare & Life Sciences together account for close to 8 per cent of Infosys overall revenues while Retail & CPG accounts for around 15 per cent of its revenues.

In a separate interview to CNBC-TV 18, Rao on Wednesday has said that the company is also expecting its profitability in the June quarter to take a hit due to the impact of the annual wage hikes which came into effect from April and additional expenses towards employee visa would weigh on the operating profit margins in the Q1 of FY17.

“From a quarter one (Q1) perspective, historically it has always been about 150-200 basis points lower than what we see rest of the year. That is something which will play this year as well because there is an impact of visa and there is an impact of compensation increase which happens starting April,” Rao said. “So, that impact will absorb a big part of it in this quarter and phase out rest of the quarters.”

In the quarter ended March 31, 2016, Infosys’s reported a 60 basis points improvement in its operating margin at 25.5 per cent over the previous quarter though for the full year (FY16), the margin stood at 25 per cent.

Rao said, historically also, June quarter margin had been lower for the whole industry.

Apart from Infosys, the share prices of industry leader Tata Consultancy Services (TCS) also dropped 1.29 per cent at Rs 2577.50, something which is attributed to the decision of Tamil Nadu government to allow formation of unions in IT industry.

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel