Bengaluru: Infosys Ltd’s remarkable transition from a company that seemed to have hit rock-bottom in June 2014 to end this financial year with industry-leading growth is one heartening story from corporate India in the last 20 months.
It will likely report sequential revenue growth of at least 2% for the three months ended 31 March, when it submits its fourth-quarter report card on Friday.
This means for the fourth successive time, Infosys’s quarterly growth will likely be higher than that of its larger rival Tata Consultancy Services Ltd, which at best is seen clocking 1.7% sequential revenue growth (in dollar terms).
This is a remarkable feat, and the country’s second largest software firm is now expected to grow faster than TCS in the current financial year.
Many believe it has been a dream start for Vishal Sikka since he took over as the first non-founder chief executive of Infosys in August 2014.
Under Sikka, Infosys has managed to keep a tight lid on employee attrition, reinvent itself, bring in a culture shift and win back the confidence of its clients.
Customers are once again awarding more business to the Bengaluru-based firm that actually put India on the global software map in the 1990s.
Understandably, investors are jubilant. Shares of Infosys, the world’s most analysed company (57 analysts track its performance), are up 41.6% since Sikka took over as its boss even as TCS’s shares fell 0.16% during the same time.
Infosys has also outperformed Nasdaq-listed rival Cognizant Technology Solutions Corp. in the recent past.
Infosys recorded 6% growth in the July-September period, followed by 1.6% growth in the October-December period. Cognizant recorded growth of 4.7% and 1.4% in the last two quarters, respectively. Cognizant does not expect any sequential growth in the January-March period. Hence, Infosys’s growth will likely be higher than Cognizant for the third straight time.
Will Sikka be brave enough to give an aggressive guidance that keeps Infosys’s growth within Cognizant’s conservative revenue growth outlook of between 10% and 14% in calendar year 2016? That is the big question heading into earnings day.
While Sikka shared his optimism with nearly 1,000 Infosys executives in February and said he wants to grow the IT firm’s revenue by 16% next year (2016-2017), chances are the company will continue its age-old practice of ‘under-promise and over deliver’ while giving outlook for the year ahead on Friday. It may settle for an at-best 12% revenue growth in dollar terms for financial year 2016-17.
Even this target will be enough to cheer investors, as it will be the highest growth outlook by Infosys in five years. More importantly, it means the company remains on track to achieve its ambitious target of hitting $20 billion in sales by 2020.
2016 is also an important year for Sikka.
For any IT firm, the measures a CEO undertakes start showing results only after 15-18 months.
Infosys, under much of Sikka’s first 20 months, has reaped the benefits of the cost-cutting measures of his predecessor N.R. Narayana Murthy.
2016 will see the real impact of all the “new” measures (Design Thinking and Zero Distance) that Sikka ushered in since taking over the helm of Infosys.
Mint trains a spotlight on five things which will be eyed when Infosys declares its earnings on Friday:
1. Revenue forecast: Brokerage firm BNP Paribas sees Infosys recording 2.1% sequential increase in revenue at $2.45 billion for the January-March period. It expects dollar revenue growth of 10-12% for the next financial year. This is respectable, since both TCS and Wipro Ltd will grow at less than 7% and 4% in the current financial year, making many analysts believe that Infosys will record better growth than its home-grown rivals in the next financial year too.
2. Management commentary: For technology firms, a decent performance in the current quarter helps them start on a good note in the next financial year. Analysts term this as “exit rate” and for Infosys, this has been historically low. Its management has said repeatedly that it was working to improve this, and for this reason commentary from Infosys for the year ahead will be important, especially since Cognizant expects soft client demand for this calendar year.
3. Sectors and geographies: Analysts will keep a close eye on spending by clients in banking and finance sector and Infosys’s performance in managing IT infrastructure for clients in general. Until now, Infosys has lagged behind TCS, Wipro and HCL Technologies Ltd in scaling up its infrastructure business. However, since the start of the fiscal year, Infosys has clocked the fastest growth among all home-grown firms in this space.
4. Key metrics: Infosys wants to increase its productivity per employee and boost its profitability by 4% to 30%. However, over the last 20 months, revenue per employee has been declining. Its profitability, too, has remained under pressure as it has been the most aggressive in pricing while trying to bag large deals. Hence, commentary on these two themes will be eyed closely even as Infosys remains on course to increase its revenue to $20 billion by 2020.
5. Weak areas: One sore point in Infosys’ journey over the last 20 months has been the underperformance of two of its units, namely EdgeVerve and Infosys BPO. Both together accounted for a little over 10% of its $8.7 billion revenue last year. EdgeVerve does not have a full-time leader, after Michael Reh quit last month. Infosys BPO is struggling to keep pace with its peers. Investors will want to know how Sikka intends to revive those units.