Infosys cuts guidance to 8-9 per cent despite better Q2 performance

Infosys Ltd, India’s second largest software exporter cut its annual forecast for the second time to 8-9 per cent growth this year, suggesting that the IT industry struggles in an uncertain business environment is far from over.

In July, it had reduced its earlier guidance to grow at 10.5 to 12 per cent, while it saw the impact of Britain’s exit of Europe, project cuts and delayed decisions by banking clients to implement projects has pushed the company to lower its guidance second time in as many quarters.

Infosys stock, which rose on positive second quarter results, dropped 2.42 per cent or Rs 25.85 at Rs 1026.2 at 10.25 am on the Bombay Stock Exchange on Friday, after the poor guidance.

Infosys said the RBS client decline and other client specific things caused the company to lower the guidance in the second quarter, when it beat profit and revenue estimates. Infosys chief executive Vishal Sikka said that the company had won large orders of over $ 1.2 billion in the quarter, which he said, was good in a “difficult and structurally challenging time”

The lower forecast will also force India’s software lobby Nasscom to reduce its growth estimates for the $ 108 billion Indian tech industry. In April, the industry body had projected 10-12 per cent growth for the year ahead.

Infosys larger rival Tata Consultancy Services (TCS) on Thursday called the second quarter “unusual” saying that there is caution among customers due to ‘growing uncertainties in environment’.

“While we continue to navigate an uncertain external environment, we remain focused on executing our strategy and increasing momentum of our software plus services model. Considering our performance in the first half of the year and the near-term uncertain business outlook, we are revising our revenue guidance.” said Sikka, the first non founding chief executive of Infosys said in a statement.

“Longer-term, I believe it’s increasingly clear that our industry’s future lies in evolving from a cost-based, people-only model, to one in which people are amplified by software and AI, and are freed to innovate in areas that are strategic to our clients’ future.”

Infosys reported 6.1 percent growth second quarter profits of Rs 3606 crore on revenue of Rs 17310 crore, which grew 10.1 per cent over the same period last year. Infosys had posted profits of Rs 3398 crore on revenue of Rs 15635 crore in the second quarter of last year. Operating margins, calculated as revenue minus costs, improved by 80 basis points to 24.9 per cent. Revenue grew 3.14 per cent over the previous quarter, as the company focused on efficiency, improving people productivity and optimising people costs in locations in the West.

On Thursday, TCS reported 8.2 per cent increase in profits at Rs 6,586 crore as revenue grew 7.8 per cent to Rs 29,284 crore. The company grew its dollar revenue over the quarter by 1 per cent, the lowest for the company in over a decade. TCS had posted profits of Rs 6085 crore on revenue of Rs 27165.5 crore. Europe was the key market to drive growth for the company.

TCS stock rose Rs 16.5 or 0.71 per cent at Rs 2345, while Infosys stock dipped, dragging the IT index on the BSE.