Infosys results show rosy mood, but new wave is yet to come
“The quarter is a volatile animal,” Infosys CEO Vishal Sikka declared this morning after his company, India’s second largest software service exporter, reported better-than-expected first quarter results for April-June, sending its shares surging by about 10%.
Sikka knows that it is wise to be modest in words and strong in performance – something that has historically been part of the culture of Bengaluru-based Infosys, a pioneer in India’s IT industry.
The simple fact is that Infosys is going through a profound turnaround after a chequered few years in which its own management challenges were compounded by a global economic crisis and tectonic shifts in both technology and business models of the IT service industry.
At the heart of the new equation is an attempt by Infosys to do better the stuff that helped it grow big (cost-efficient coding and services) while trying to touch new frontiers (innovation and digital transformation using intellectual property) because the old tricks will not work anymore if it wants to be a leader.
Q1 revenue for Infosys grew 7% on the quarter – the highest in 15 quarters. For Sikka in his new role, this was only the third full quarter on the job after taking over last August. Year-on-year growth was 12.4% in revenues. Revenue growth is expected to maintain the pace through the year. Not bad at all.
However, most of the topline growth came from volumes that grew 5.4% -- the highest in 19 quarters. The company attributes this to an “organisational realignment” announced earlier this year. Large client additions helped keep the mood up.
The acquisition of 200-employee-strong Pranaya from Israel, which provides value-added services, added to the momentum as it brought in new deals. The quarter also saw Infosys complete the acquisition of Kallidus Inc, which specialises in digital experience solutions – a hot new area.
But the point to note is that the handsome numbers are by and large more from better management and probably, a bounce-back in the US economy, the biggest market for the export-oriented IT service industry.
Growth from new initiatives, which is what Sikka is betting on as long-term strategy, is yet to catch true momentum, but optimism on that seems to have been generated by performance under old yardsticks and the acquisitions. To the extent that new initiatives centred around innovation have helped growth, you could say that the new wave is gaining ground. But the best may be yet to come, with a long way to go. That should explain Sikka’s down-to-earth comment.
Annualised attrition is down at 14.2% compared with 23.4% in January-March. This is significant because Infosys has been bleeding staff above industry average for the past two years and was a cause for concern. True, some of the departures may have been of deadwood and hence welcome, but Infosys is not exactly a low-end player and needs to balance talent with efficiency in running a coding army.
Infosys this year announced a $500 million “Innovate in India Fund” to support Indian start-ups. The potential in this is yet to be unlocked.
Its cash chest is at Rs 30,235 crore, down from R 32,585 crore a quarter ago. This must mean the company has been spending for future growth.
Sikka’s “New and Renew” strategy seems to be working. The numbers now show more on the “renew” part of it. The “new” make take a while to zoom -- but the signs seem to be there.