Infosys should bring quarterly guidance back, some analysts say

BANGALORE: Buoyed by Infosys' strong commentary after the company's latest quarterly results, some analysts are feeling optimistic enough to ask if the company should not be providing again the quarter-ahead forecasts it killed 18 months ago.

Infosys reported its third consecutive better-than-expected quarterly results last week, when it said December-quarter profit rose 21%, beating street expectations.

Margins surprised positively as well and sales were in line with what most analysts were looking for.

Infosys, India's second-largest software exporter, was once an investor darling for giving both quarterly and annual forecasts for sales and earnings and usually beating the estimates.

This had made founder NR Narayana Murthy and his co-founders famous for their under-promise and over-deliver approach.

All that changed as the company turned in a series of disappointing results, including missed guidance, over a roughly two-year period leading up to Murthy's return from retirement when selling proprietary software platforms as a strategy didn't work fast enough. Murthy, who returned in June as executive chairman, has concentrated on cutting costs and winning large outsourcing contracts and has been helped by a broad pickup in demand in the US.

"Infosys should start giving quarterly guidance because this would signify better predictability," said Harit Shah, senior research analyst at Mumbai-based brokerage firm Nirmal Bang Institutional Equities.

Shah said giving growth projection for each quarter would be a trigger for higher stock ratings and greater investor confidence in Infosys, which has risen 50% in 2013, much of it since Murthy's return as investors have said they are willing to give Murthy the benefit of doubt.

That compares with top-ranked Tata Consultancy Services' 71.3% increase over the same period and a 6.7% gain for the broader NIFTY index.Others felt important metrics, if well met, would suffice. “Some of its peers have managed to get higher valuations without this,” said Dipen Shah, senior vice president and head of private client group research at Kotak Securities. “Guidance does not matter if key metrics, such as attrition rate and large deal pipeline, are working well,” said ICICI Securities analyst Kuldeep Koul.

An Infosys spokeswoman declined to comment.

Analysts who believe the company should start giving quarterly estimates said it will be seen as an indication of greater confidence in the senior management, which has seen a series of top-level exits and changes since Murthy returned.

“Velocity of decision making has also gone up. So my sense is that they would give both annual as well quarterly guidance starting in April,” said an analyst with a Mumbai brokerage, who did not want to be named.

While Infosys’s cross-town rival Wipro gives quarterly growth estimates without projecting an annual guidance. Mumbai-based TCS gives no forecast, but typically CEO Chandrasekaran outlines broad expectations for the year, every quarter.