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Sikka effect: Infosys on track to regain lost glory

January 13, 2015 10:01 IST

Key elements in strategy are automation and advanced technologies being used to improve efficiency, productivity.

In its December quarter, Infosys has beaten analysts' expectations on most counts and has, therefore, pleased the markets enormously; its share price since the declaration of its results last Friday has seen a rise of over seven per cent. 

The fact that it has decided to maintain its guidance for the year at seven to nine per cent in constant dollar terms (end-September exchange rate), thus putting itself beyond exchange rate uncertainty, has also added to the feel-good factor.

The company has chosen to highlight the fact that volume growth at 4.2 per cent is the highest in three years.

This, coupled with very high utilisation, means that had it been a manufacturing company, its plant would have been operating at full or near-full capacity.

This has, naturally, led to a bigger rise in the bottom line by five per cent compared with revenue going up by 3.4 per cent. Interestingly, in rupee terms, in the last two quarters there is a sharp divergence in top-line performance between year-on-year and quarter-on-quarter basis.

The sequential picture is good, but the yearly picture is not. This can be explained by the rupee's depreciation against the dollar in the latter half of 2014, but then that takes away from the credit that may be attributed to the change-of-guard factor.

It is, therefore, unsurprising that the new chief since last August, Vishal Sikka, has chosen to be very modest about any impact that his leadership may have had on the latest results.

"It is too early" for that, he argued; instead, what can be sighted is "early signs" of the new strategy taking effect. In fact, it is this strategy and what results it can bring in the medium and long term that is more useful than instant investor exuberance.

Key elements in that strategy are automation and advanced technologies being used to improve efficiency, productivity and, as a consequence, revenue per employee in the software services firm.

What can really be a game-changer in the long run is the company's decision to raise the size of its innovation fund from $100 million to $500 million (from approximately Rs 630 crore to Rs 3,150 crore). This will be used to partner start-ups, with an eye on open-source software, and a special focus on India.

Against this the immediate picture is not too bright. As far as client information technology spending is concerned, it is a "mixed bag" with spending in the United States by financial services firms (a key vertical in a key geography) likely to be flat or even down.

The major internal challenge that Infosys is yet to get over is its high attrition levels (these have gone up marginally in the last quarter) in a firm that historically took pride in its low attrition.

As the mood about the company, both outside and inside it, changes with the change of leadership and return of a sense of focus, the attrition issue will likely be resolved. But until that happens, Infosys will not regain its earlier bellwether status.

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