With stellar results, Infosys back in the reckoning

The quarterly verdict of Infosys Ltd, India's second largest IT services exporter, is in and the company has delivered beyond market expectations. Admittedly, one swallow doesn't make a summer. However, after a series of disappointing quarters, the IT major has not only executed its strategies well, the management's commentary (in terms of outlook and guidance) has also been positive. While Infosys needs to deliver consistently over several more quarters before a turnaround in its fortunes can be declared and it can go back to industry-leading growth rates, the signs are nevertheless promising.

After years of sclerotic growth, revenue increased 4.5 per cent in dollar terms to $2.16 billion, the best in 15 quarters, volume growth has been the highest in 19 quarters and attrition has also come down. Nearly a year after he assumed the role of CEO and MD at Infosys, Vishal Sikka, the first non-promoter to hold that position, seems to have breathed new life into this much-storied company. Apart from the small, focused and niche acquisitions the company has been making, what has been key in the turnaround has been the emphasis on innovation. Stress on automation, artificial intelligence and design thinking seems to have started delivering results for the company. The management pointed out how some of this is been done at present for the large clients and in the next 2-3 quarters, it would be rolled out for all others too.

While markets have been ecstatic about the stellar results, sending the stock up by nearly 10 per cent today, there are a few cautionary things. Margins have been impacted and despite the company's protestations to the contrary, it seems to have traded a bit of margin for growth. The management is only partially right that margins have been affected due to wage hikes rolled out this quarter as well as visa costs and currency movement. Slow growth in Europe, its second-biggest market, remains a cause for concern. The company is still sitting on $5 billion in cash and it will have to find some good avenues to deploy through acquisitions. Attrition, a big concern for Infosys, has come down to 14.2 per cent at the end of the June quarter. While this is slightly higher than the 13.4 per cent reported last quarter, it is a sizeable fall from 23.4 per cent reported in the same quarter last year.

At the end of the first year of leading Infosys, Sikka can look back with a degree of satisfaction. From the brink of being an also-ran, he has brought Infosys back into reckoning. However the company needs to deliver consistently to regain its erstwhile status as industry bellwether.