 "Old Infosys is dead, Vishal Sikka stamps his presence")
‘Off with the old and on with the new’ best describes Infosys under the stewardship of Vishal Sikka. The change isn’t just evident from the change in the timing of its quarterly earnings announcement. Sikka might have been late on his first earnings date with the Street, but made it up by beating the Street’s estimates on almost every parameter. Had it not been for the currency impact, the growth would have been 2.6 per cent. The company has chosen not to ignore currency impact on the revenue growth, which is why it has maintained its full-year revenue forecast of seven-nine per cent.
From the timing of the result announcement to the willingness to address the market’s concerns on capital allocation, Sikka has made it clear the new Infosys will do things differently. The company has increased allocation to the innovation fund — which will invest in start-ups in automation, internet of things, collaboration and design — from $100 million to $500 million.
That transformation is underway is apparent from Sikka’s commentary. Although dollar revenue growth at 0.8 per cent quarter-on-quarter is in line with estimates, the operational parameters are significantly better than in the past three years. The December quarter has seen a sequential volume growth of 4.2 per cent, which Sikka claims is the highest in three years, while utilisation (excluding trainees) has hit a year-high of 82.7 per cent. Also, the company has reported sequential growth across regions. Revenues by services have also grown for many key segments, but application development has fallen on a sequential basis to 14.9 per cent from 16.1 per cent in the September quarter. The management claims the decline is not a secular trend. Application maintenance has grown to 19.5 per cent from 18.9 in September and infrastructure management services has grown to 8.2 per cent, from 7.9 in the previous quarter.From the timing of the result announcement to the willingness to address the market’s concerns on capital allocation, Sikka has made it clear the new Infosys will do things differently. The company has increased allocation to the innovation fund — which will invest in start-ups in automation, internet of things, collaboration and design — from $100 million to $500 million.
Operationally, December has been a strong quarter, despite all the negative impact from currency. It beat the Street’s estimates on margins by a long shot. While the Street was expecting a dip of 100 basis points (bps) in the margins, Infosys has reported operating margin of 26.74 per cent, an increase of 60 bps sequentially. The margin performance, too, has been the best in 10 quarters.
On the downside, the company continues to battle attrition, which remained above 20 per cent. Also, the company has conveyed the deal pipeline in the US is not very strong. Retail and telecom verticals continue to face issues. Banks, too, are taking a cautious approach to information technology spending, the company said during an analysts’ call.