Bengaluru: Nandan Nilekani and Salil Parekh are quite content that Infosys Ltd has become a boring company. It is understandable why the chairman and chief executive officer of India’s second largest information technology (IT) services firm intend to make it even more boring. Infosys, under earlier boss Vishal Sikka, was always on the front pages of newspapers, albeit not always for reasons the company would have hoped. As Sikka often complained in the past, this unending stream of news proved to be a distraction for the senior management. Eventually Sikka resigned in August 2017. Worse, employee morale took a hit. Predictably, all this impacted the share price as Infosys’ share underperformed in 2017.
Nandan Nilekani and Salil Parekh need to steer Infosys to better growth in 2019-20
The next year was different. Infosys in 2018 focused on doing business quietly. During the July-October quarter, Infosys for the first time in its history, managed to win more than $2 billion in contracts in a quarter. Infosys shares jumped 27% in 2018, emerging as the fourth-best Sensex scrip.
Still, two areas which will test the resolve of Parekh are employee attrition and Infosys’ ability to translate impressive deal wins into actual revenue. Infosys’ attrition and senior management departure continues to be high. Again, Infosys has won a good number of deals in the past but it has failed to translate them entirely on account of poor execution.
These two themes, along with the company’s performance in the October-December period, will be watched when Infosys declares its third quarter earnings on Friday.
Mint turns the spotlight on five things to watch out for in Infosys’ earnings on 11 January:
1. Revenue growth and management commentary for the financial year: Infosys is estimated to post sequential dollar revenue growth of 1.5% in the October-December period, according to an analyst at brokerage JM Financial Institutional Securities Ltd. This is 10 basis points higher than what the brokerage expects from TCS’ earnings. A higher growth rate, despite the Mumbai-based TCS being almost twice the size of the Bengaluru-based Infosys, should cheer investors. Management commentary on the demand outlook for the fourth quarter and for the next financial year will be crucial.
2. Will Infosys retain its full-year revenue guidance? In April, Infosys first outlined full-year growth 6-8% in constant currency terms and 7-9% in dollar terms. In October, Infosys retained its annual growth of at best 8% in constant currency terms even though it discontinued its practice of issuing full-year dollar revenue growth outlook. JM Financial’s analyst Pankaj Kapoor estimates Infosys will narrow its 2018-19 growth to 7-8%. Infosys’s investors should be mindful that TCS will grow at least 10% in constant currency terms in the current financial year. Nilekani and Parekh surely cannot rest on their performance, and both will need to steer Infosys to grow better in the fiscal year beginning April. Expectedly, management commentary on the business trajectory will be watched.
3. Can Infosys arrest its industry-leading attrition level? Under Parekh, Infosys’ IT services business has seen an attrition level of 16.6% at the end of the March quarter last year and 20.6% and 19.9% at the end of June and September quarters, respectively. Worryingly, Infosys continues to see the departure of senior leaders. All of this needs to be swiftly addressed, reckon analysts, before Parekh can be credited with having successfully stabilized Infosys. Understandably, attrition rates and management commentary on employee departure will be eyed.
4. How is Infosys improving its execution? Infosys has won over $3 billion worth of deals in the first six months of the current financial year. Agreed, this is less than a third of the $9.8 billion in deals won by TCS, a company almost twice the size of Infosys, during this period. Surely Infosys needs to improve further its ability to win deals. But a bigger challenge ahead for Infosys is to translate deal wins into actual business. This is because Infosys in the past has at times been plagued by poor execution, which led to lower actual revenue than the promised deal wins. Management commentary on how business is translating from deal wins will be eyed.
5. Share buyback: At the start of the year, Infosys, as part of its capital allocation policy, had outlined that the company intended to return Rs 2,600 crore in dividends and another Rs 10,400 crore through other means, including buyback, to shareholders. Considering Infosys’ last share buyback was completed in December 2017 and since a listed company can do only one share repurchase in a year, it is no surprise that the board will discuss the issue of share repurchase on 11 January. Analysts will watch if the share buyback along with the performance is able to shore up the share price in the coming week.