Infosys going through tough times, says V Balakrishnan, CFO

In an interview with ET NOW, V Balakrishnan - Member of the Board and Chief Financial Officer of Infosys, talks about why the company misses Q4 guidance and it's cautious outlook. Excerpts: 

Why has Infosys given such a poor guidance?
You should understand, the economic volatility is too high and most of our revenue comes from US and Europe. In the March quarter, we have seen confluence of three or four things. One, the decisions got delayed for some of the large contracts which are to be assigned. We have seen ramp downs in some of the financial services clients. Wherever we anticipated that the project will start and the ramp ups will happen, those decisions got delayed and we have seen some changes at the CSO level in some of our customers that has impacted the decision making process. 

When you have a confluence of all those four which impacted our revenue growth in March, financially we want to be cautious for next year. Today, the challenge is not about budgets because most of the clients have finalised the budgets and budgets are either flat of slightly down but the ability to focus on the spending has come down. 

At a time when US economy has recovered, how come that is not translating into some kind of a visibility for Infosys and are you of the view that if US economy indeed improves in coming quarters, that could change spending, commitment and then outlook from some of your clients? 
It is going to be volatile because if you look at all the recent macroeconomic data emerging from US, there are concerns about growth. The employment creation has not been up to the expectation and Europe crisis is still lingering around. In this kind of environment, customer ability to come and spend on IT with a volatile environment also comes down. If you look at all the S&P 500 companies, earlier one-fifth of the companies did not give guidance for the full year, now it has increased to one-third. 

This means ability of companies to predict for next 12 months has come down drastically and that also impacts the spending patterns of the clients. If you are looking at an uncertain environment, their ability to come and spend also comes down. That is what we have seen but hopefully if the macroeconomic data improves and clients get more confidence, probably they will come and spend more and we will look good. 

Are you factoring in the possibility of a growth deterioration in your guidance? 
No, we have been saying this, our guidance is the statement of fact. For example last year in the beginning, we gave a guidance of 18% to 20% growth. We revised it to 17% to 19% in the second quarter because the currency moved. Then we brought it down to 16.3% based on the change in environment. 

Finally we delivered 15.8%. So you are living in a very volatile world. Our guidance is a statement of fact. It can be positive and negative depending on how the world environment is going to move. We have given a guidance based on what we know at this point of time. 

No salary hike was given this year. You had an additional tailwind from the currency equation because rupee depreciated by about 5.8% for FY12. So both the tailwinds have been played out. Why are you factoring in a margin decline of about 50 basis points to about 100 basis point for FY13?
We exceeded the year with a 70% utilisation excluding trainees. That is one of the lowest utilisation we have seen for many quarters in the past. You have a lower utilisation that is going to impact margins and also we are hiring 35,000 people more. Our comfort zone on utilisation is somewhere between 76 to 80. That means for a 6% growth, we already have people. 

We are hiring 35,000 more to make sure that we train our employees and keep them ready if there is incremental growth and on our employees side, we have always taken care of them. Even in 2008 the worst crisis, we honoured all the offers in the campus. We were the only company which honoured all the offers we gave in the campus. 

Even two years back, we distributed the shares at trust to all the employees free of cost. So we always take care of employee interest and this is an unusual year. We are starting with a very volatile environment. Our visibility on growth is very limited. To that extent, we have to balance the interest of stakeholders. 

That is why we said we are not looking at a wage hike at this point of time. Over the year when we have better a better hold on the growth, probably we will re-look at the wage hike.