The disappointing results Infosys has posted raise concerns in the near term, but industry watchers are bullish about the path laid out by Chief Executive Vishal Sikka.
During the results, Infosys announced two developments — an acquisition and an investment in a start-up — that have got thumbs up from analysts.
“It is a reconfirmation that their new strategic initiatives aligned to structural changes are starting to yield some results,” according to Sanjoy Sen, a doctoral researcher, Aston Business School, UK.
Infosys, which has been sitting on a cash pile of around $5.2 billion, has been accused of not being aggressive in terms of making acquisitions to grow at higher rates.
Before Sikka took over, the company had acquired Lodestone, a European tech company, which was the second in the company’s three-decade history. “The acquisition in m-commerce, among other emerging tech areas, is a direction that the company is hoping to differentiate its wares,” said Sanchit Vir Gogia, an analyst at Greyhound Research.
Some analysts believe this acquisition is not that big to make a substantial impact on the company’s revenue. “It’s too small to significantly add anything to the top line,” opined Sarabjit Kour Nangra, Vice-President Research - IT, Angel Broking. However, Sikka is convinced that the intellectual property and the clients that the acquired firm (Kallidus) brings to the table are important, adding the acquisition was given a go-ahead unanimously by the board.
As Infosys has been witnessing pricing pressures, coupled with ramp-downs on several outsourcing projects for several quarters now, the writing on wall is evident when it comes to traditional outsourcing projects. In the analyst call, Sikka explained that there is a deeper shift under way in the way clients are demanding outsourcing work to be done.
New visionTo address this changing trend, which has broader implications to the Indian outsourcing industry, Sikka has come up with a vision of achieving $20 billion in revenues by 2020, coupled with a revenue per employee of $80,000.
This has been met with a mix of optimism and cautiousness. Dipen Shah, Head of Private Client Group Research, Kotak Securities, said Infosys’ focus on next-generation services and delivery models can shore up the growth rates of the company and sustain margins. “It depends on whether customers are convinced in outsourcing approach and the company’s internal ability to execute,” said the head of strategy of a top-five IT outsourcing firm.