Bengaluru: After many quarters, Infosys investors had something to cheer about and they celebrated. The Infosys stock closed 11 percent up at Rs 1112.65. It overtook ITC and ONGC to become the fifth most valued on the BSE. Intra-day, the stock had risen 15 percent adding 37,000 crore to investor wealth.
This investor cheer came on the back of an announcement that the company reported a 5 percent increase in quarterly net profit, bolstered by a surge in demand for IT outsourcing services from clients in the United States, its biggest market. Its net profit stood at Rs 3,030 crore in the June quarter, up from Rs 2,886 crore a year ago. This was better than many analysts’ estimates. Consolidated revenue for the quarter was up 12.4 percent to Rs 14,354 crore, from Rs 12,770 crore in April-June, 2014.
The company also said it expects revenue to grow 7.2-9.2 percent in dollar terms, lower that industry body Nasscom’s estimates for the sector at 14-16 percent. Infosys sees its revenue growing 11.5-13.5 percent in rupee terms.
Has the Sikka magic worked? Is the Company on the upswing after a painful transition?
According to Sikka, the numbers show that the company’s operational focus and adoption of innovation and new technologies are “starting to show results”. “While we are still early in our journey to become the next-generation services company, this gives us a good momentum for rest of the year,” he said at a press conference.
Brokerages are in sync with this view too. For one, Credit Suisse has said the numbers “signal at least for now that the turnaround is on the right track”.
Sikka, who is ex SAP, has a clear strategy – Client mining. After taking over the reins, he had set up a group of executives under him to engage with 15 large clients.
In an investor conference in New York, Sikka had said the team will monitor the top three clients from each of the five verticals. The move would enable the company “to better mine (clients), connect the dots, create a lot of agility around new opportunities as well as arrest decline in existing opportunities,” he had said.
That this is paying off is clear as a report in the Mint newspaper notes “for the first time in five years, the 10 biggest clients of Infosys outsourced more work to the company.” Revenue from Bank of America, its largest client, topped $300 million.
In addition, to retaining and growing the business of existing clients, the company has added 79 clients during the quarter under review. Now, it has a total of 987 clients. The contract wins included a multi-year contract from a major German bank for application maintenance services, digital and mobility services, package implementation, and testing services. This is a clear endorsement of his exhortation to employees to think design. The strategies are likely to pay higher dividend once the recovery in the US economy takes concrete shape.
The company has also managed to control attrition, a high stakes ailment of the IT industry. Quarterly annualized attrition for stood at 14.2% compared with 23.4 percent in the year-ago quarter. However, on quarter this is an increase from 13.4%. However, management did clarify that the first quarter is always more dicey for attrition. The management expects the rate to decline a further 200 basis points going ahead. What has lead to the improvement is the various measures undertaken by Sikka to boost the staff morale including a casual dress code. Interestingly, it has to be noted that at larger rival TCS, employees are leaving in droves.
Infosys reported a 4.5% on-quarter growth in dollar revenue to $2.2 billion, while industry leader, TCS’s had risen 3.5%. As far as volumes are concerned, Infosys’ growth was 5.4% and TCS’ 4.8%.
