After withdrawing its guidance in March, IT major Infosys is the first Indian IT firm to reinstate its revenue guidance for FY21. Peer Wipro was more cautious and shied away from offering any guidance.
The company guided 0-2 percent growth in constant currency revenue terms and operating margin in the range of 21-23 percent.
Wipro’s guidance is quarterly, whereas Infosys is annual. TCS does not provide any guidance.What gives Infosys confidence?
This announcement comes at the back of huge demand in areas of digital, strong deal pipeline and better growth visibility despite the coronavirus pandemic.
The company is seeing huge demand in the areas of digital such as cloud, automation, cybersecurity and vendor consolidation, which the company said it benefitted from.
“We announced landmark digital engagements with Vanguard for record keeping services. This, coupled with our strong Q1 result, gives us a powerful foundation for the rest of the year,” said CEO Salil Parekh.
Infosys’ signed large deals worth $1.74 billion for Q1 FY21 compared to $1.65 billion in Q4 FY20. On July 14, the company won a large contract in the US, which according to a Times of India article, is pegged over $700 million.
Infosys registered 1.5 percent year-on-year growth in constant currency terms at $3121 million. Its digital revenue grew 24 percent and now accounts for about 44.5 percent of total revenue.
There are still uncertainties. “Regions such as the US and UK are still emerging from the pandemic. In India, the state of medical emergencies are still not fully known. Not everything is completely clear in terms of future horizons,” Parekh pointed out.
“However, what we have learnt in Q1 and the ongoing strong client connects is that the strength of our franchise is coming through clearly. With that we reinstate our guidance,” he explained.
For Infosys, like its peers, a digital strategy is key.Digital strategy amid COVID-19
As clients move to a new normal, the company is aligning itself with the clients’ demand. Case in point is the company’s digital revenue that is close to 45 percent. However, the company’s core (legacy businesses including maintenance and support) revenue has declined by 14 percent YoY.
Is core replacing digital for Infosys? Parekh explained that it is not a question of whether core will replace or be bigger than digital. “It is being much more aligned to what our customers are looking for and make sure we have those capabilities to provide them the right services. That’s the approach,” he added.
“One of things we put in place really is how do we want to drive digital. The reason is that this is where clients are making the biggest changes. That is the transformation journey we are embarking upon,” Parekh explained.
By bringing digital component to 44.5 percent, Parekh said the company is strongly aligned with what is relevant to its clients.