Infosys is set to permanently scrap providing quarterly revenue guidance and stick to annual forecasts, given the prolonged industry uncertainty resulting from smaller contracts and tighter spending on technology by top clients, three people familiar with the matter said.
After being the industry bellwether for about a decade, India’s second-largest software exporter stopped quarterly forecasts two years ago under co-founder and former chief executive SD Shibulal after a long period of under performance in its core outsourcing business. Infosys is also exploring options that include issuing its annual revenue guidance in constant currency in rupees, to mask the effect of foreign exchange volatility, the people mentioned above said. All of them requested anonymity.
The strategy to drop quarterly forecasts is a reflection of the changing demand environment in India’s $146-billion IT industry, where outsourcing contract sizes have shrunk over the years and the number of large outsourcing customers such as General Electric (GE) and Citigroup has also gone down, reflecting saturation in large technology markets such as the US.
“Benchmarks are important, and there need to be targets that employees in the company can aspire towards. But at this point, it looks almost certain that Infosys will scrap quarterly forecasts for good,” one of the people mentioned above saidInfosys did not immediately respond to an e-mail seeking comment. After the Lehman crisis in 2008, large technology customers tightened technology spending for a while and top IT firms found it tough to gain long-term visibility on revenue growth. With the exception of Accenture and Cognizant, no other IT firm now gives quarterly and annual revenue growth forecasts.
Tata Consultancy Services (TCS) doesn’t provide specific revenue forecasts. Wipro issues sequential quarterly forecasts in constant currency terms.
For the 2015-16 financial year, Infosys may forecast annual revenue growth that in constant currency terms is expected to be, at best, at the lower end of average growth forecasts for the software exports sector. Industry lobby Nasscom has forecast revenue growth of 12-14% for software exports for this fiscal year.
In 2012, under Shibulal, Infosys underwent its most tumultuous period financially, missing its own quarterly revenue forecasts several times and losing its prized bellwether tag to faster growing rivals such as TCS and US-based Cognizant Technology Solutions.
Infosys subsequently stopped making quarterly revenue forecasts — a far cry from when the company epitomized and became a gold standard for consistent financial performance and dependable returns for shareholders. In constant currency terms, analysts on average expect Infosys to forecast guidance between the 9-12% range for the year ending March 2016.
Experts tracking the IT sector said the guidance metric is starting to lose significance, especially when a company consistently delivers strong performance and issues forecasts on qualitative parameters. “Honestly, the guidance doesn’t matter that much. If you’re executing a strategy or a plan and if you’re consistently delivering on performance, it doesn’t really matter whether any figure is given in terms of annual guidance or quarterly guidance,” said Kuldeep Koul, an analyst at ICICI Securities. “TCS is a great testimony to that fact — they don’t give any annual guidance or any quarterly guidance and yet the market has rewarded them with greater multiples in this space than any other company — they just give out qualitative parameters,” he added.