Infosys: Shibulal blames economy, internal re-organisation for disappointing Q4

Software services major Infosys CEO SD Shibulal has blamed the global economy and internal re-organisation within the company for the weak performance in the March quarter. Infosys, India's second biggest IT outsourcer had missed its dollar revenue growth forecast in the March quarter, despite a downward revision of the guidance earlier.

"While the macro-economic challenges have been overwhelming, we were also impacted by company-specific issues such as the re-organization," Shibulal said in the annual letter to shareholders Monday.

Shibulal had taken over as the chief executive officer of the company in August 2011.

"I am disappointed as you are with our performance in the January-March quarter of fiscal 2012. Our model was built on Predictability, Sustainability, Profitable and De-risking (PSPD). However, our predictability in the recent quarters has been impacted by challenges in the global economy coupled with internal organizational changes," Shibulal said.


Global economy has hurt growth:

An uncertain global economy, eurozone sovereign debt concerns and rising US rhetoric against the outsourcing of jobs to low-cost locations ahead of the November presidential election have triggered worries about a decline in outsourcing demand. The Indian outsourcing industry gets about three-quarters of its revenue from the United States and Europe.

Considered to be the IT sector's bellwether, Infosys seems to be more affected by these global headwinds. The company has guided for 8-10 per cent growth in dollar revenue terms for the current fiscal year (2012-13), which is even below IT lobby Nasscom's forecast of 11-14%.


Share prices go downhill:


Shares in Infosys, once seen as a sector trend-setter, have fallen over 13 per cent since the earnings announcement on April 13. In contrast, the BSE Sensex has lost nearly 6 per cent in the same period.


Salary hike on freeze:


The muted growth forecast has forced the company to put salary hike of employees on freeze.

"As we go through a challenging growth environment, we have decided to postpone the yearly salary increments for our employees. However, we will re-visit this decision the moment we get back on the growth path," Shibulal said in the annual report.


Visa misuse allegations:


Sentiments in shares have also been hurt over allegations of visa misuse. In May 2011, Infosys received a subpoena from a grand jury in a US District Court in connection with a lawsuit filed by one of its US-based employee.

The employee, Jack Jay Palmer, had alleged that Infosys was misusing B1 businesses visas issued by the US. B1 visas are issued for short-term business visitors and not for employees being sent onsite on work.

The subpoena, which Infosys said it is complying with, required the company to submit certain documents and records related to its sponsorships for, and uses of, B1 business visas.

Shibulal said he was pained by these allegations.

"Any allegation or assertion that there is or was a corporate policy of evading the law in conjunction with the B-1 visa program is simply inaccurate. Like in the past, I am sure we will overcome this challenge too," he said.

Meanwhile, the company is being investigated by the US Department of Homeland Security (DHS), which has found errors in the I-9 forms, used by an employer to verify an employee’s identity and to establish that the worker is eligible to accept employment in the US. Every employee hired has to complete an I-9 form at the time of hire.

"In the event that any government undertakes any actions which limit any visa program that we utilize, or imposes sanctions, fines or penalties on us or our employees, this could materially and adversely affect our business and results of operations," the company said in its annual report.