Software major Infosys clocked a growth rate of 19.7% in fiscal year 2021-22, its highest annual growth rate in a decade as it sees robust demand for its services. This is also the third year in a row that it has grown faster than larger rival TCS, prompting questions on whether Infosys has now regained its position as the IT bellwether.
While FY22 was a banner year, the fourth quarter disappointed, as revenues and margins came below expectations.
Moneycontrol spoke to Infosys CEO Salil Parekh on the factors that led to the disappointing earnings in the fourth quarter, the road ahead, and the controversy surrounding the company's operations in Russia. Infosys founder NR Narayana Murthy's daughter Alshata Murty is married to Rishi Sunak, the British Chancellor to the Exchequer. Her shareholding in Infosys has sparked political controversy in the UK despite the company ceasing operations in Russia.
Edited excerpts -
It's been a banner year for Infosys as, in terms of your annual growth for FY22, it is the highest in a decade - 19.7% in constant currency. Can you tell us what really helped you in the previous fiscal and are you on track to grow at the same pace? In terms of the momentum, can you give us a sense of the demand going forward?
We have had incredible growth in the financial year 2022. At 19.7%, we clearly see that we are taking market share in a very competitive market. The reason behind this is our focus with our clients on digital transformation, cloud work, and data work. As we look ahead, we have given a growth guidance of 13-15% which is very strong guidance as we start the year. We see our pipeline in good shape, a very good demand environment and we have recruited in the fourth quarter 22,000 net new employees. And that, among other things, gives us very strong confidence for the future. Our large deals were $2.3 billion in the quarter, $9.5 billion for the year, and all of those factors give us confidence for the year ahead.
Last year, you began at 12-13% and then you gradually took up the guidance to 19.5-20.5%. Can we expect a similar pattern of under promise and over delivery? Will you finally end the year at a similar percentage?
We have given guidance based on what we see and the demand environment. That's what we did last year and that's what we do every year. It so happened that in the last year, we continued to see more and more traction as the year progressed and we were in a fortunate position to raise that guidance. As we begin the year, we already are starting at a high number, 13-15%, and we will see as the year progresses what the environment holds, and based on that we will decide what to do.
If I look at the fourth quarter, the revenue and margins came below what analysts were estimating, so some disappointment there, that you ended the year on a soft note. You mentioned some one-off factors in terms of clients but can you give us some details on what this reversal is about and what the impact will be?
In Q4, we had our year-on-year growth at 20.6%, which was even stronger than our full year growth. That apart, we had good traction in terms of large deals. There was a one-off event with respect to a contract, which we will see in the coming quarters a reversal of. We have no more details to share at this stage. However, we feel comfortable given all the volume expansion and the demand we see in the future and the 13-15% guidance as our business continues on a very strong trajectory.
Another big spoiler was the attrition number, which zoomed to 27.7% while TCS' is at over 17%. Do you see this getting worse before it starts moderating? What kind of challenges are you seeing on the supply side?
What we witnessed during the quarter was that our attrition came down by 5 points from the previous quarter. As we move forward, we see that initiatives such as greater employee engagement, compensation increase, more opportunities on different projects in the company, and career progressions, all have started to have an impact on the employees and will have a greater impact in the coming days. We see the attrition which has come down with all of these initiatives coming in place, further benefiting us we go ahead.
On the Russia situation, you recently ceased operations there. Was this a major concern for your clients, considering you derive a majority of your business from North America and Europe. Secondly, the whole controversy around Akshata Murty and her shareholding in Infosys has created a storm of sorts in the UK. How much of a concern are both these factors?
We support the peace activities going on there. As a company, we have contributed to humanitarian efforts. We have within Russia less than 100 employees and neither we are working for any Russian clients nor there are any plans to do so in the future. The work we are doing is for global clients and we have initiated the transition of that work from Russia to our centres in eastern Europe.
This is also a third year in a row when Infosys is growing faster than TCS, at least in terms of the revenue growth rate. Is Infy the new IT bellwether?
What is really critical is the way the clients are working with us and what we are gaining as market share. Our objective is to make sure that we do things that make sense for our clients and we are part of their digital journey.
Today, in fact, the cloud work that is going to happen in the next several years, the digital work, and the automation that we are doing, we have an unlimited opportunity on that front. The capabilities that we have built is the reason why we are gaining market share and we believe we will continue to expand. Today, the market is really exciting and we want to make sure we are at the forefront of that.
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