RBS Deal Loss: The revenue growth rate for Infosys in the second quarter is expected to be better than in the first, Chief executive officer Vishal Sikka told analysts on Friday. He also added that the company will have to wait until October before predicting for the financial year ending March 2017.
Infosys, which is India’s second-largest software company reduced its fiscal 2017 guidance to 10.5-12% in constant currency terms from the 11.5-13.5%. After having the multi million-pound deal with Royal Bank of Scotland been terminated, analysts had predicted that it would be likely that the company would have to amend its forecast once more.
Sikka said the company is also looking at ways to offset the loss of RBS contract. “We can confidently say that Q2 growth will be better than Q1. And the way the quarter ends will be important for the guidance. We have another five weeks of execution until the end of the quarter, so clarity on the guidance will only come in October,” he said.
In the first quarter Infosys’ top line grew by 2.2% consecutively. The first major piece of bad news under Sikka was related to the lowering of the revenue growth forecast. Sikka being the first non-founder CEO. The company’s share price has risen by 22% ever since Sikka took over as the CEO. However since June this year, the stock has dropped by nearly 19% as investors fuss about demand for software services and Infosys‘ ability to implement its policy.
The company now expects to see its Finacle and India business grow in Q2. Sikka said Infosys is seeing the initial impact of the Brexit vote. “We are seeing the early signs. Clients are cautious and the RBS issue was part of that. There is caution in pockets,” he said.
Sikka mentioned the company faced no problems in attracting talent. He also declared the appointment of IBM executive Sanat Rao who has 13 years of experience as head of the company’s Finacle banking solutions business. Infosys had centralized its businesses under its presidents after the exits of senior management personnel. This decision made the analysts increasingly concerned about it.
RBS deal loss – Centralization of business: A concern?
“An attempt to concentrate too much responsibility (or several portfolios) in fewer hands in large companies runs the risk of overburdening top management; which is not a good thing, especially today when the outlook for India IT services/outsourcing is turning more sluggish. In our view, Infosys is quite centralized at the top already and does not require another dose of centralization,” Viju George, an analyst with JPMorgan, said in a note dated August 18. Sikka addressed those issues specifically saying the company had come up with a way to mitigate centralization.
“We are creating smaller business units with about $500-700 million in revenue that will be managed by the next rung of leadership. This will leave the presidents free to the take more strategic initiatives,” Sikka said. Industry experts said the focus that new units would bring would be a positive for Infosys .
As part of its initiative to shape up the next generation of talent, Infosys revealed a long-awaited leader for its Infosys Leadership Institute. Pravin Rao, Chief operating officer said the company has appointed former Symantec executive Robin Kirby to lead its leadership drives.