Infy: Will centralisation deliver 10-12% growth?

Sikka to actively manage top 15 clients across verticals

As the first quarter of FY16 draws to a close, Infosys is painting a rosy picture of its prospects before analysts. After long, the company is confident of clocking double-digit revenue growth (albeit in constant currency), as demand across verticals remains robust. The Street believes revenue growth of 10-12 per cent in constant currency, as guided by the company, is achievable.

There are several steps the company has taken to improve its go-to-market strategy. The firm is much better equipped to mine existing clients than it was 12 months ago, thanks to improvement in its operational efficiency. Integration of consulting teams, analysts believe, will give the company muscle while bidding for large deals. With Vishal Sikka’s office actively managing the top three clients across five verticals, the company's ability to mine existing clients for deals would meaningfully improve.

Infosys has also merged consulting operations in Europe (Lodestone) and the US so that the 100 partners across geographies can engage with top 200 clients (top 100 existing clients and 100 potential clients).

Axis Capital believes Infosys is proactively focusing on offering innovative industry solutions to fulfil client requirements. The brokerage believes this will lead to more strategic engagements with clients and drive differentiation for the company. Bids for large deals would be made by a central team, which would evaluate the proposals before submissions. Delivery teams, too, have been centralised so that they are more effective.



Other than this, automation is a big tool to drive down costs and improve efficiency. Analysts believe automation is beyond the discussion stage at Infosys. The Panaya acquisition and Infy's Automation Platform is already driving efficiency and helping win deals. While automation, a key differentiator for Infosys, will play an important role in protecting profitability, Kotak Institutional Equities says it remains to be seen if the benefits of automation accrue in time to defend FY16 margins. The company is also using automation to solve client problems and not just to drive down its own costs. Infosys, however, is confident of maintaining earnings before interest and taxes (Ebit) margin at 24-26 per cent.

However, what could be a drag on Infosys’ growth ambitions would be its exposure to service verticals, growing at a much slower pace. For instance, enterprise resource planning accounts for a sizable portion of revenues and that have grown at 9.2 per cent over the past three years, while its exposure to infrastructure is much lower. Infrastructure has grown at 20 per cent plus over the past three years.

According to IIFL, a 20 per cent year-on-year growth in infrastructure services in FY16 would translate into 1.6 per cent overall revenue growth. The issue of service mix and dearth of large deal wins would be an overhang for the stock.