For the first time since first quarter of 2013 fiscal, Infosys has deployed higher percentage of employees in client locations, which has resulted in the company bagging more multi-million outsourcing deals.

In the first quarter of 2014 fiscal, Infosys saw an increase of 5.8 per cent in the volume of projects coming from onsite locations. At the end of the first quarter, 52.1 per cent of the company’s revenues came from onsite locations, compared with 49.7 per cent in the June quarter of 2012.

Higher revenues from onsite locations generally translate into larger multi-million dollar consulting and package implementation-related outsourcing projects with higher margins. Volume growth from client locations has been topsy-turvy for the past few quarters.

In the first quarter of 2013 fiscal, Infosys reported a 2.3 per cent increase, followed it up with 4.4 per cent in the next quarter. In the third quarter, it was 3.7 and 4.8 per cent as the company cited delays in deal closures and clients pulling back IT budget due to economic sluggishness.

Infosys bagged seven large deals valued at $600 million and its investments abroad has got a thumbs up from analyst Viju Gerorge of JP Morgan who, in a recent report, said that hiring quality talent at onsite locations to better cater to high-end service demand is paying off. However, analysts argue that while higher onsite work is good news, it affects profitability as costs tend to be higher for an onsite employee.

“While onsite increases are a positive, we are looking at ways in which the company can maintain its onsite-India mix so that higher costs do not result in margin erosion,” said A.K. Prabhakar, Senior Vice-President - Equity Research, Anand Rathi. The company is still staring at a huge bench, which is nearly 30 per cent and analysts feel that with improved onsite volumes, more work could trickle down to India-based employees.

“The company is trying to inch up its employee utilisation and it could be one of the margin levers,” said Ankita Somani, IT and telecom analyst, Angel Broking.

(This article was published on July 16, 2013)
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