It seems CEO Vishal Sikka’s Midas touch has worked for India's second-largest software company, Infosys, has posted a strong revenue growth in the first quarter of fiscal 2016 at 4.5%. This was Infosys’ fastest quarterly revenue growth in three years ar $476 million.
Sikka termed it as a great quarter, during a news conference, and said, “We are still early in our journey towards becoming a next-generation services company. However, this quarter gives us something to smile about and good reason to be confident.”
Shares of Infosys soared by 11.5% to close at Rs 1,116.35 on the National Stock Exchange. For the April-June quarter, Infosys registered a net profit of $476 million, compared to $482 million a year ago. Revenue jumped to $2.26 billion.
As experts believe that cloud computing and advancements in areas like automation and data analytics worked for Infosys, here are 6 things that worked in favour of Infosys and gave it a good opening.
Renew and new: Vishal Sikka’s strategy has begun to pay off. In a bid to make Infosys the next generation services company, Sikka believes that there should be a balance between ‘renew and new’. Companies are finding a balance between traditional bread-and-butter services which bring in the revenue while adjusting to handle changes brought on by advanced technologies and new business models.
More power to top management team: Sikka, who joined Infosys last August, strengthened the top management team by employing a number of high-profile former SAP colleagues. He also carried out internal overhaul, including large-scale re-skilling of employees. Managing Director of HfS Research, Tom Reuner, told Economic Times that customer wins such as a large order from Deutsche Bank appear to indicate progress with sales execution. “Employee morale is also better due to strategic vision of altering perception of Infosys as an innovator by focusing on automation,” he said.
Acquisitions and investments: Infosys had invested $1.4 million (Rs 9 crore) from its $500-million innovation fund to pick up a minority stake in ANSR Consulting. The company also invested in next-generation startups. During the quarter, the company signed six large deals worth $688 million. Annual business from Infosys' largest customer Bank of America also topped $300 million.
Solid execution: Bourgeois, head of research at DeepDive Equity Research, told ET that Infosys' performance was due to solid execution and new strategies. Infosys' brilliant performance was also triggered by strong growth from its largest market North America, and from verticals such as manufacturing and retail.
Protecting margins: The latest quarter also marked a shift from Infosys's earlier strategy of protecting margins at all costs, with the company showing signs of pursuing growth at the cost of margins. Operating margin during the quarter fell to 24% from 25.7% in the previous quarter.
Promotions: Infosys promoted more than 2,600 employees and executives across the company and raised its overall variable payout in the June quarter after turning in one of its best quarterly performances in five years. Attrition rates, which have been a continuous headache for Infosys over the past few years, fell to 14.2% from 23.4% last year on a quarterly annualized basis.
“The company should comfortably achieve its target of revenue productivity of $80,000 per employee by 2020, but that margin target of 30% maybe more difficult to get,” said Sikka.
Last year, Infosys elevated nearly 14,000 employees and executives and got more selective about handing out promotions and are only rewarding top performers.