Growth to continue amid cost cuts, says Infosys

The company has been able to maintain industry-leading growth due to strong operational efficiencies

Infosys is taking cost reduction measures to remain competitive in the industry without hindering investment in new services. 

“We believe that we have to remain competitive. For that, we have to look at our cost structures, especially on the traditional services. We have zeroed in on four-five indicators,” said M D Ranganath, chief financial officer, Infosys, at Citi Technology Conference on Friday, adding that apart from employee utilisation “consistently at 80 per cent”, other levers included onsite effort and role mix. 

“Onsite employee cost as a percentage of revenues touched 43 per cent. We brought it down. It is currently hovering at 30 per cent. The second part is onsite role mix and so on. But mind you, all these cost optimisation measures, deployed in the past two years, were not at the cost of growth. We do not want these to be a hindrance to our growth, including investments in new services,” Ranganath said. 

Software services companies, such as Infosys, Tata Consultancy Services, Wipro, Cognizant and others, have seen a sharp decline in demand for traditional technology services, which still forms the major portion of their business, with the emergence of automation and digital technologies. Uncertain geopolitical environment in the US and European markets have added to their woes. The firms are increasingly stepping up their play through digital technologies, such as cloud, and automating work on traditional services front. 

At a time when software services deals are becoming small and outcome-based, Infosys said it has been able to maintain industry-leading growth, primarily due to “strong operational efficiencies”. The $10.2-billion IT services firm, the second-largest in the country, reported 30.1 per cent onsite employee effort against an overall utilisation of 80.2 per cent as on June 30. This included sending expensive senior resources back to India and hiring local resources in centres where salary costs are lesser compared to Silicon Valley or New York.

The shift in focus towards productivity also means it reduced hiring. In the quarter to June, Infosys saw its headcount reduce by 1,811 people. According to analysts, levers for cost optimisations are not many for IT services firms. “There are limited levers for cost optimisation now. Getting more projects offshore in markets such as India and the Philippines will ensure better margin. Otherwise, Infosys is not doing something dramatic. They are trying to cut cost in certain areas, for example marketing expenses,” said Pareekh Jain, senior vice-president, HfS Research India.   

Infosys is also using inbound sales team from India to generate leads using emails and call centres, before passing on them to teams in Western markets.  Jain also said that automation across different projects could help through a great deal of cost cutting. Infosys said it has been developing tools to meet the changing client demand. “Broadly, clients are trying to reduce spend on keeping the lights on what is called as run the business. They are trying to repurpose spends in newer areas and that trend started two years ago. Whenever any deal comes for renewal, they clearly expect 30-40 per cent reduction in the life term of the deal….we are also internally investing on tools and trying to meet client expectations without compromising on the margin,” said U B Pravin Rao, interim chief executive officer and managing director, Infosys. 

The firm said it has already taken into account headwinds due to rupee appreciation impact and local hiring in the US in its 23-25 margin guidance for the current financial year.