Can Infosys deliver stronger quarters in FY’2016?

Thomas George

Infosys happens to be the darling of stock market and the most media savvy among our top Indian IT Services export club TWITCH (TCS, Wipro, Infy, Tech Mahindra, CTS, HCL Tech). But will it wade through the storm of cross currency headwinds and damping growth of IT spend across global enterprises?

There is perhaps not a single day, when Infy might have missed a mention in mainstream financial dailies for its one or the other initiatives; but is it an attempt to emphasize more on its recent developments or more of a communication strategy after Dr. Sikka took over the reins of the company as CEO.

The company will be announcing its Q4 results soon and will it be another quarter of decent growth and margins? Last two quarters have been good for Infosys – which lost its edge for few quarters and it might be wrong to credit those two quarter performance to its new CEO. However, company’s strategic shifts elucidated by Dr. Vishal Sikka are for sure in the right direction.

We see the discretionary spending has not increased considerably and its might raise concerns on a possible hat-trick performance of good revenue growth and margins. The reasons are pretty clear. Firstly, there is very little a company could do with the external environment not being very conducive for their growth aspirations and secondly, global customers have not been able to increase their sales revenues, which could support the higher IT spend across industry verticals. There is a structural shift in the market towards newer technology landscape and capability requirements.

Dr. Sikka has been at the cusp of technology and market transformations process and with his astute execution skill he has been building a more energetic and motivated workforce – working towards better employee connect and town hall meetings, transferring close to 150 delivery folks to manage accounts, organizing ‘Design Thinking’ workshops to understand connect with C-Suites and their problem areas, access to social media during the work hours, more risk taking approach to merger and acquisition (Panaya -2nd largest acquisition in its history) .

We hope the company will deliver a more conservative guidance for FY’2016 and muted Q4 revenue performance below its industry peers and below NASSCOM estimated industry growth rates. The margin could be maintained as there is no scope for further cost rationalization. Margin pressure is mounting further due to lower margin businesses and recent investments into re-skilling its employees and sales and marketing expenses, which had declined to all time low levels at Infosys.

This week, we will know whether Infosys got its act correct under the leadership of its new CEO following its ‘Renew and New’ strategy or will it will take another 6-8 quarter to deliver better than the industry growth rates. It will be a reality test now for sure, but not a hat-trick quarter performance according to us.