Sikka's 'New and ReNew' strategy sparks a slow turnaround at Infosys

India's second largest IT services exporter Infosys Ltd reported better than expected net profit numbers and revenue, which were in line with market expectations for the third quarter of the current financial year.

In constant currency dollar terms, Infosys reported revenue of $2,218 million, a 2.6 per cent growth over the previous quarter. Net profit increased to $522 million, a growth of 2.2 per cent over the previous quarter.

Interestingly the company managed to increase its operating margin by 60 basis points. The third quarter is usually seen as a seasonally weak quarter for IT companies.

Infosys, which counts Apple, Procter & Gamble as well as Harley-Davidson amongst its clients, also maintained that it would grow by 7-9 per cent in dollar terms as per exchange rates prevalent on 30 September 2014.

However, market analysts pointed out that since the rupee-dollar value had changed in the meanwhile, Infosys growth rate thus would actually be in the 6-8 per cent range, taking currency fluctuations into consideration.

The company reported volume growth of 4.2 per cent, which it said was the highest in the past three years. Infosys said it was increasing its 'innovation' fund used to invest in startups from $100 million to $500 million. There was some cause for concern with attrition still at 20.4 per cent, though company COO U.B. Pravin Rao said it was trending down over the past few quarters.

However, Sanchit Vir Gogia, Chief Analyst and CEO at Greyhound Research said that the dollar growth rate was sluggish. "While Vishal (Sikka) has done a great job in mapping the long term strategy, the market will (continue to) look out for softer signs of improvement in short and medium term.

Infosys also needs to go beyond pure commentary on digital, social media and analytics portfolio and attach concrete financial outcomes and guidance in the coming quarter. He has done a great job in reviving interest in the supporting ecosystem and in rethinking the existing portfolio of strategic partnerships. He deserves another two full quarters before any judgement can be passed about the company's performance under his leadership."

The markets, however, seemed to have liked the company's performance with the stock going up by 5.13 per cent to Rs 2,074, at close of trading on Friday.