Infosys' good results not so much Murthy effect: Zinnov

In an interview on CNBC-TV18, Sundararaman Viswanathan, Engagement Manager, Zinnov Management Consulting, shared his views on Infosys Q1 earnings. Infy’s better than estimate result is more the feel good factor and effects of deals which started kicking in. It is not so much the Narayana Murthy effect, he added.

Infosys is now focusing more on commoditised services and has a good position in terms of margins and spend. “It is now better poised at least for the short term in terms of three years from now, in terms of winning any of the rebids. It is just going to heat up the situation among the service providers," he elaborated. According to him, Infosys has been very clear that it will be cutting back on margins, thereby triggering a price war and increasing competition in the market. Below is the verbatim transcript of Sundararaman Viswanathan's interview on CNBC-TV18 Q: It would be false to say that this is the Narayana Murthy magic back at Infosys. The fact of the matter is that the company has done better this quarter perhaps incrementally better both on the revenue as well as the margin front. What is your key takeaway from the quarterly numbers? A: In terms of key takeaways it’s good. It’s good for the industry per se. It’s a feel good factor essentially that Infosys needed. In terms of the key takeaways, some of the deals which they have done in the past are really kicking in, so, that’s good. Otherwise essentially I wouldn't read too much on the Murthy factor coming back in because it is a little too early but otherwise it’s a feel good factor, some of the deals which they have done are just really kicking in. Q: I also want to talk about those rebid wins because that’s something that we are seeing a lot in the IT sector, today what’s your lunch is tomorrow somebody else’s dinner and day after somebody else’s breakfast. Lot of those big deals are up for rebid and there is a lot of churn in that market. We have seen Infosys actually bag seven of those deals amounting to about USD 600 million. What’s your key takeaway on that? A: That is one of the key things now. Had they just continued with 3.0 strategy which they had embarked upon, probably they would have lassoed on some of those deals or probably even the ones which are coming up for renewal and rebid. Given that they are focusing now on commoditised services more, it is clear as to how they would go about it. They have got a good position in terms of margins and spend that they would do. So Infosys is now better poised at least for the short term in terms of three years from now, in terms of winning any of these rebids. It is just going to heat up the situation among the service providers. Q: In terms of commentary from the management what is your takeaway about pricing strategy going forward? There has been a lot of speculation on whether Infosys is going to go out into the market, is there going to be cut throat pricing strategy that they are going to put in place because that is something that they have traditionally stayed away in order to actually ramp up volume significantly. No clear signal or indication coming in from the management how would you read that? A: I would say that there were a couple of very clear indicators. One is that they just stuck to the guidance, 6-10 percent they just stuck to that. That I would really take as one of the key insights. Then the other one is that Narayana Murthy in his comeback speech he made it amply clear to the stakeholders, to the employees and to the market that we have to compromise on margins. So, essentially he has triggered off a price war and they are going to be highly competitive. It is not just about the dollar per hour rate that is in question but also other investments which they would make. For example acquiring some assets of the companies which they are bidding for, maybe even taking up some onsite delivery locations and things like that. So, they have very clearly sent out signals both in terms of the price points that they would compete and some of the steps they would take in terms of making some upfront investments even if they have to make to win some large deals. They have sent out the message pretty clearly on that front. Q: What more are you expecting and anticipating in terms of a change in strategy as far as Infosys is concerned. We have seen leadership changes of course, NR Narayana Murthy coming back, Basab Pradhan exiting, Ashok Vemuri being given interim charge of Basab Pradhan’s role. What more can we actually expect in terms of change in strategy? What’s your gut telling? A: It’s a pretty interesting time to be a leader in Infosys. In terms of the strategy going forward, they are very clear. They are going to be much more sales oriented. They have kind of put on backburner the Infosys 3.0. Their strategy is going to be to go after all the commoditised services, infrastructure management and areas like that where they had stepped back a bit. So in terms of strategy, they are going to be pretty clear. In fact they have been talking about adopting delivery head and sales head roles which really worked 10 years ago when it came to winning commoditised services. Now, if they are going to go back to an administration structure like that then again they would be well positioned to take on some of those deals and really go after them aggressively. So in terms of leadership structure, it is going to be a heavily sales oriented structure, there are going to be lot more accountabilities that are going to be handed over to these leaders in terms of sales numbers. But in my view, I still feel that Infosys 3.0 needs to be given its due share in terms of time. Maybe they would revive it again but for now the mantra is commoditised services, go after large deals with heavy sales orientation. That’s how the leadership structure is going to look like.