Gold Silver Reports — Brexit hurting IT, risk of more deals being cancelled: Sikka — Infosys CEO Vishal Sikka on Friday pointed to the possibility of more contracts being cancelled, as happened recently with a deal with the Royal Bank of Scotland (RBS), and indicated that the external environment for IT companies remained uncertain .
“We are seeing softness in some clients post Brexit which was not anticipated in the beginning of the quarter. We want to see if RBS is a one-off case or there are more like RBS,“ Sikka said at an investor meet in Pune on Friday.
Earlier this month, RBS cancelled a five-year contract with Infosys after it abandoned its plan to float a separate standalone UK bank, Williams & Glyn (W&G). The contract will impact as many as 3,000 Infosys employees and is expected to impact revenues this financial year by at least $40 million -one brokerage house, CLSA, expects it to be in the range of $50100 million.
Infosys, which counts Marks & Spencer, Santander and Sainsbury’s as key customers in the UK, is looking to offset the loss of the RBS contract with other orders such as the one it got from the Indian government to build the tech network for GST (goods & services tax). The company had a relatively disappointing first quarter.It was hoping to make up to some extent in subsequent quarters, but the RBS cancellation is a setback to that effort.
Sikka said he is confident that Q2 (July-September) growth will be better than Q1.But he said the way the quarter ends would 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 July , after the Q1 performance came in, Infosys lowered its revenue growth guidance for the current year to 10.5-12%, from 11.5-13.5% that it provided in April.
Sikka noted that some other leading IT companies have also become cautious. Cognizant has lowered revenue guidance twice this financial year. Sikka said on the positive side the company has been able to arrest some of the execution-related concerns that pulled down performance in the June quarter. He said the company has seen improvements in its large deal wins. — Neal Bhai Reports