Why hasn’t Infosys upgraded margin guidance if TCVs are at record high? Sandip Agarwal asks

Sandip Agarwal, Fund Manager & Co-founder, Sowilo Investment Managers, says "there has been a line by line miss on all fronts for Infosys, except for TCV, which is decent. But otherwise, if you see guidance, growth, and margin, there is quite a miss in all three. These numbers are much inferior to what we saw in TCS."

We have just got the numbers for Infosys and according to our ET Now poll estimates, there has been a slight bit of a miss coming in on the revenue margins and the guidance front. What are you seeing for the company? What is the scorecard according to you?
Sandip Agarwal: Infosys is going through this challenge for the last few quarters post change in leadership as multiple top-level people have left, the momentum of growth has been lost and because growth is below estimate for few quarters now, the operating margin is not also playing out to the extent estimated.


It is also reflected in the guidance. So, line by line miss on all fronts is what I can say except for TCV, which is decent. But otherwise, if you see guidance, growth, and margin, there is quite a miss in all three. These numbers are much inferior to what we saw in TCS.

What are the things you will be looking out for when the management speaks on the management concall? What are the factors you will be watching out for going forward?
Sandip Agarwal: The most important question to be asked to the management is that if your TCVs are at record high as it shows in the data and also mentioned by the management and even the attrition numbers are very low, why is there no solace in the margin guidance? Why haven’t they not upgraded the margin guidance?

Number two, despite such a strong TCV, why is growth guidance so low? We are not able to connect the dots of what is pulling down growth so much and why they are projecting this kind of growth. In my view, this guidance and these numbers are on the lower side of what anyone would have been anticipating.

Going forward, is this trend likely to continue with the margins? There has been no upward revision of the guidance despite the attrition being low. Is this likely to continue? What are you pencilling in on the margin front for Infosys?
Sandip Agarwal: I do not cover this company as an analyst anymore. We run a PMS and our client may be holding some positions in the tech space, but I can say that based on my experience of the last 20-22 years, it seems that again a company-specific problem is there. I do not see the sector to be in so much trouble as much as it is reflected in the guidance and growth of Infosys.

There will be clearly two sets of numbers. In one set of numbers, Infosys and Wipro results will look weak and on the other hand, TCS and HCL numbers will be slightly better than or at least reflect the industry more closely. What we have as a data point is that it is really a weak set of numbers and a weak outlook as well. But this looks more of an Infosys-specific problem rather than having much to do with the sector.