Analysts say Infosys back to its old conservative ways
, ET Bureau|
Oct 26, 2017, 02.03 PM IST
BENGALURU: Analysts cheered the clean-chit that Infosys’ revamped board has given its corporate governance and said the slashed guidance given out by the company is a sign that it is returning to the conservative stance taken by the IT company’s founders.
On Tuesday, Infosys said its board had concluded, again, that there was no merit to allegations of misconduct in the severance awarded to former CFO Rajiv Bansal and the company’s acquisition of Israeli software firm Panaya. After nearly a year of acrimonious public battles between the then board and founder NR Narayana Murthy, analysts are hoping that the matter has finally been put to bed. “We think that the board finding no wrongdoing in the Panaya acquisition and deciding to close the matter is comforting as it will aid senior management to avoid further distractions in day-to-day operations,” Abhishek Bhandari, analyst with Macquarie Research, said in a note.
The company also cut its full-year revenue growth guidance to 5.5-6.5% from a previous target of 6.5-8.5%. Most analysts had expected the company to trim the upper end of the range, leaving the lower end untouched. Some analysts attributed the steeper-than-expected cut to the company returning to the conservative roots of its founders. “We think the sharp guidance cut indicates a return to its old practice of guidance so conservative that it cannot fail to meet it,” Ravi Menon, analyst with Elara Capital, said.
Infosys was known for its conservative guidance, a practice long known as ‘under-promising and over-delivering’, which was the title of Menon’s note. Under former CEO Vishal Sikka, the company began giving more realistic guidance. That backfired in FY17, when drastic macro-economic changes led by Brexit and the US elections led the company to cut its outlook three times in a row.
“We believe that Infosys is being conservative and are confident of it meeting the top-end of the range,” Urmil Shah, analyst with IDBI Research, said. But others warn that the weaker guidance is also a product of the company’s weaker first-half performance coupled by the softness the IT industry is seeing in banking and retail.
Nomura analyst Ashwin Mehta listed a slew of reasons to still be cautious on Infosys as a stock.
1) Likely disruption in newer initiatives given senior management attrition (largely ex SAP talent)
2) Elevated senior management attrition over the last 12 months, followed by the CEO’s exit
3) Overall and large-segment (US / ADM /BFSI / Retail/Mfg) growth decelerating
4) Traditional margin levers exhausting with peak utilisation, historical low trainee levels and slow growth
5) FIIs might not be enthused by results and turn of events, countering DII interest in the stock,” Mehta said.
On Tuesday, Infosys said its board had concluded, again, that there was no merit to allegations of misconduct in the severance awarded to former CFO Rajiv Bansal and the company’s acquisition of Israeli software firm Panaya. After nearly a year of acrimonious public battles between the then board and founder NR Narayana Murthy, analysts are hoping that the matter has finally been put to bed. “We think that the board finding no wrongdoing in the Panaya acquisition and deciding to close the matter is comforting as it will aid senior management to avoid further distractions in day-to-day operations,” Abhishek Bhandari, analyst with Macquarie Research, said in a note.
The company also cut its full-year revenue growth guidance to 5.5-6.5% from a previous target of 6.5-8.5%. Most analysts had expected the company to trim the upper end of the range, leaving the lower end untouched. Some analysts attributed the steeper-than-expected cut to the company returning to the conservative roots of its founders. “We think the sharp guidance cut indicates a return to its old practice of guidance so conservative that it cannot fail to meet it,” Ravi Menon, analyst with Elara Capital, said.
Infosys was known for its conservative guidance, a practice long known as ‘under-promising and over-delivering’, which was the title of Menon’s note. Under former CEO Vishal Sikka, the company began giving more realistic guidance. That backfired in FY17, when drastic macro-economic changes led by Brexit and the US elections led the company to cut its outlook three times in a row.
“We believe that Infosys is being conservative and are confident of it meeting the top-end of the range,” Urmil Shah, analyst with IDBI Research, said. But others warn that the weaker guidance is also a product of the company’s weaker first-half performance coupled by the softness the IT industry is seeing in banking and retail.
Nomura analyst Ashwin Mehta listed a slew of reasons to still be cautious on Infosys as a stock.
1) Likely disruption in newer initiatives given senior management attrition (largely ex SAP talent)
2) Elevated senior management attrition over the last 12 months, followed by the CEO’s exit
3) Overall and large-segment (US / ADM /BFSI / Retail/Mfg) growth decelerating
4) Traditional margin levers exhausting with peak utilisation, historical low trainee levels and slow growth
5) FIIs might not be enthused by results and turn of events, countering DII interest in the stock,” Mehta said.
