Q3 margins improved due to focus on efficiency: Infosys

Analysts said the company’s latest numbers were an indication that the return of NR Narayana Murthy, who took over as executive chairman in mid 2013, is working.

Q3 performance

A full-year revenue guidance of 11.5 percent-12 percent sales growth means the company only has to achieve flat growth in the fourth quarter to meet the projection.

CEO SD Shibulal, however, did not directly answer if the company was being too conservative in its earnings forecast, something it has developed a reputation for, only saying: “Our guidance is a statement of facts as we see it at the beginning of the quarter.”

During its earnings release, the company issued a statement saying it was “excited” about the year ahead. Many analysts have likened the current IT situation to 2009 when signs of initial demand revival after the global crisis proceeded into a full-blown pick-up in 2010, and expect similar recovery into 2014.

Reasons that drove Q3 growth

The company’s offshore-onshore mix changed in the third quarter with more revenue coming from offshore work. But this was not the only reason why margins improved despite the top-line remaining flat, Srinivas said. “There is also a focus on internal efficiencies, improving utilisation onsite, making sure that the individual roles are built for the specific tasks being carried out. There is also a lot of efficiency drive in terms of increased automation.”

Srinivas added that if pricing environment continues to be stable the company could see some margin expansion.

Shibulal said he was also witnessing demand come back. With 85 percent of the company’s revenues coming from clients based in US and Europe, the company should hope the current economic recovery in developed countries would help its revenues.

“We are seeing confidence coming back in our clients. But we expect [their] budgets to only remain stable from last year. Clients are still focused on cost,” he said. “We hope we will be able to build solutions to help reduce their costs.”

Employment picture

The company’s attrition stood at 18 percent – high compared to peers. But Srikantan Moorthy, Senior VP & Group Head-Human Resource, said numbers had come down on an absolute basis.

“There are several things that we are doing in terms of people. We changed the compensation structure last June. On the developmental front, we have brought in several initiatives including the concept of a bridge academy to re-skill people, on the engagement part we have used technology extensively to connect with our people globally,” he said.

The company has also hired heavily making about 16,000 campus offers last year, Moorthy said. “We are also looking to bring in about maximum 6,000 off-campus offers starting late January early February, so there is a lot of activity going on that is bringing people in, engaging them and developing them.”

View on exodus

The CEO termed the spree of top management exits the company has seen in the past six months as “normal” for an organization as large as Infosys. “These were great leaders with tremendous skills. They may have had aspirations larger than what Infosys could have offered,” he said. “Each of these transitions has been smooth.”