Posts Tagged ‘Infosys’

Infosys to step on the gas, consider big acquisitions

October 29th, 2014

Displaying Infosys’s new-found confidence and aggression under a new management, Chief Operating Officer U B Pravin Rao on Tuesday said the company was ready to make “large acquisitions”, adding it was considering a few in strategic areas and regions.Outsourcing49

Rao said Infosys was open to acquiring companies with annual revenue of $600-700 million and wasn’t averse to bigger acquisitions. “There is no constraint (on how much the company will pay for acquisitions). At the end of the day, if it is in line with our strategy, if we think it will add value to our strategy and give us time-to-market advantage, we are pretty confident we want to do it,” he told Business Standard.

As of September 30 this year, Infosys had reserves of Rs 33,616 crore ($5.44 billion) in cash and cash equivalents.

Infosys has long been conservative, as far as inorganic growth is considered. Rao, who claims his leadership style is “optimistic” (not ‘cautiously optimistic’), said in the recent past, the company had considered a couple of large acquisition targets but did not proceed due to certain mismatches in terms of the overall strategy and valuation.

Unlike some of its other Indian or offshore-centric information technology (IT) services peers, Infosys is not perceived as aggressive in pursuing mergers & acquisitions (M&As). Since its inception, it has carried out only five acquisitions, the largest being Lodestone, a Switzerland-based management consultancy firm Infosys had acquired in September 2012 for about $345 million (Rs 1,930 crore). Two of the acquisitions – McCamish ($58 million) and Portland Group (A$34 million) – were in business process outsourcing.

In 2008, Infosys had offered to buy UK-based SAP consulting company Axon Group for about Rs 3,300 crore ($753.1 million), though it backed out after peer HCL Technologies bid a higher price.

It was learnt Infosys had also shown interest in acquiring TriZetto, a US-based health care IT solutions firm that was eventually acquired by Cognizant for a whopping $2.7 billion.

“We take risks but finally, we can’t be foolhardy. If you look at Axon, it made better sense for HCL than us at that stage. We wanted it but there was a limit on how much we wanted to pay. So beyond that, it did not make any sense for us. It was because we already had a dominant SAP practice; we still have the dominance today,” Rao said.

He added Infosys was eyeing large acquisitions in areas such as health care and the government business space in the US, where it already had a subsidiary, Infosys Public Services.

In terms of locations, the company is looking at the Nordic countries and Japan. Rao said the company was also looking at smaller acquisitions to acquire capabilities in new technologies such as automation, analytics and big data. “Probably, these will be smaller (acquisitions) because I don’t think there are many large companies in these spaces.”

In terms of M&As, Rao said Infosys could have done more captive acquisitions, akin to its peer Tata Consultancy Services, adding failure on this front was why the company had lost out in rapidly growing its core business. “That (captive acquisition) is an area where we have publicly stated we missed the boat.”

Rao said the new strategy unveiled by chief executive Vishal Sikka earlier this month had gone down well with clients, as well as employees. He said while from one perspective, the new strategy remains was almost the same as Infosys 3.0, the company was focusing more on execution. “We are quite clear there will be equal focus on the core business (application, development and maintenance, which the company often dubs the ‘bread and butter’ business), as well as new areas such as design-thinking, platform-centric services and automation.”

He added while the company’s attrition rate continued to be high, there was a drop in attrition numbers every month.

Under the new management, Infosys had launched the ‘murmuration’ initiative to crowd-source innovative ideas from employees. Rao said the company had received an overwhelming response to this, adding some of the ideas selected had been put to vote.

On the business environment, the chief operating officer said he believed some of the company’s “struggles” were past, adding he was now more “optimistic” about Infosys’s growth prospects.


Infosys aspires to be bellwether of Indian IT industry again: Sikka

October 28th, 2014

Global software major Infosys Ltd. aspires to be the “bellwether of the Indian IT industry once again”, said its first non-founder chief executive Vishal Sikka.Outsourcing46

“We aspire to be the bellwether of the Indian IT industry once again in the next 18 months,” Sikka told reporter in an interview.

It’s been just over two months since 47-year-old Sikka took charge Aug 1, succeeding last co-founder S.D. Shibulal.

Sikka has got cracking to renew the $8.3-billion company’s efforts to catch up with the industry’s revenue growth in double-digit (13-15 percent) from seven-nine percent projected for this fiscal (2014-15).

“Over the last two months I have been the CEO, I have had an opportunity to interact with a few dozens of our partners, about 100 customers and tens of thousands of our employees in India and other parts of the world,” Sikka said.

“We have been in the past a next-generation software firm and defined many dimensions of being a top services’ company. I believe we will get back to that and go beyond that to lead the industry again while maintaining our profitable growth,” he asserted.

Noting that the world was dramatically being reshaped by software and software-defined technologies, the former SAP executive said there was a great opportunity for every business to simultaneously achieve a duality by renewing its systems and processes to derive more efficiency out of them and to instrument them for analytics, mobility, social media and sensors as well as re-platforming them for the cloud to achieve better economy.

“The purpose of this great renewal the world over is to make the systems and processes relevant to the modern world and the emerging world and derive operational efficiencies from that,” Sikka said after piloting the company to a robust growth in second quarter (July-September) of this fiscal (FY 2015) and beating market estimates in topline (revenue) and bottomline (profit).

Call it the ‘Sikka effect’, the city-headquartered company Oct 10 reported a robust net profit and revenue growth in rupee and dollar terms for the quarter under review (Q2) year-on-year and sequentially, fuelling its blue-chip scrip to soar seven percent in trading on bourses last Friday.

“We had a very good quarter sequentially, with 3.1 percent revenue growth and 26.1 percent operating margin, though our banking product (Finacle) business did not have a great quarter. We believe the best is yet to come and we are looking forward for the company to scale new heights in the ensuing quarters,” Sikka affirmed.

Observing that each business complimented this renewal with a new set of offerings for achieving new customers and growth, Sikka said every company achieved transformation on the basis of education, learning and training their employees.

Admitting that the same framework of culture and learning applied to Infosys as well, Sikka said the company was renewing every service line and everything it offered on the basis of innovation, automation and artificial intelligence.

“We believe that these will revolutionise our back office services, maintenance services, infrastructure management services, verification services and other services we offer on the basis of technology. The renewal includes the way we operate, our internal system and processes and the way we engage our employees and customers,” Sikka pointed out.

Under the new leadership, the company initiated new platforms for Big Data based on open source technology, bringing artificial intelligence-based adoption technologies and creating new methodologies like working with Stanford University in the US on design thinking for entering into new areas and getting new clients in a systematic and innovative way.

“We believe that a next generation company like ours has a tremendous potential for growth with profitability and aspire to become the best of such an excellent service company,” Sikka claimed.

Clarifying that the company’s next growth phase would be built on the rich legacy he inherited from the co-founders, Sikka said new initiatives were to renew the existing systems and processes with innovation, automation and artificial intelligence to improve the customers’ operational efficiencies and enhance their productivity.

Since the global financial crisis in 2008 and during the subsequent recession period, Infosys faced several external and internal challenges, including a challenging business environment due to uncertain macro-economic conditions worldwide.

As a result, Infosys lagged behind rivals like TCS, Cognizant and HCL Technologies on revenue growth, operating margins and in winning big outsourcing deals.

Though co-founder N.R. Narayana Murthy returned from retirement June 1, 2013, to revive the company’s fortunes, its revenue growth was 11.5 percent last fiscal (2013-14) as against the industry’s 13 percent and way behind TCS’s 16.2 percent, Cognizant’s 20.4 percent and HCL’s 14.3 percent.

During Murthy’s year-long tenure as executive chairman, the company also saw a dozen senior executives quit and an exodus of 36,000 techies in search of greener pastures.

Handing over the baton to Sikka, Murthy and another co-founder and vice-chairman S. Gopalakrishnan stepped down from their executive posts Oct 10.


Gulf between Infosys & TCS narrows in September quarter

October 22nd, 2014

Infosys, India’s second-largest IT services exporter, has narrowed the gulf with its rival Tata Consultancy Services (TCS) in certain growth parameters like organic growth and operating profit margins in the just concluded September quarter, setting the stage for an interesting battle between the two Indian IT majors.Outsourcing34

TCS has been consistently maintaining a definite lead over Infosys in all the key metrics like revenue, profit, OPM, attrition rates and there were no signs of any closure of the gap between the two in the past many quarters. However, at the end of second quarter of FY15 the revenue growth reported by Infosys was 3.1% while it stood at 3.6% for TCS, without taking into account the inorganic revenue from the buyout of its stake in its venture with Mitsubishi. In the same vein, the gap between the two in terms of operating profit margins (OPMs) closed down to just 0.7% when compared to 1.2% in the preceding sequential quarter.

The surprising aspect in this quarter was the differing performance by Infosys and TCS with regard to market expectations. Infosys, which positively surprised the markets with its second-quarter performance, also received the boost with the presence of new CEO, Vishal Sikka, who is also the first non-founder to head the company providing an indication of the way forward for the company. As BNP Paribas, a brokerage house in its note following the results, said, “The new CEO’s strategy is aimed at transforming Infosys into a ‘next-generation’ services company, more details of which are due by April 2015. Infosys believes a successful shift could mean revenue growth of 15-18% and an EBIT margin of 25-28% in the long term, which are significantly higher than current levels. “

Sikka during investors calls post the results spoke about the increasing use of automation, artificial intelligence by Infosys while bringing new paradigm in terms of design thinking and reskilling of their employees. There are enough strong indications that Infosys would be able to achieve its revenue growth guidance of 7-9% for FY15.

However, it would be a long haul for Infosys to match up with TCS, as the latter over the last two years has consistently maintained a very steady growth rate outperforming the industry benchmark. Today, the revenue gap between Infosys and TCS for the second quarter of FY15 stood at $1.7 billion while the net profit difference being $361 million. At one point of time though Infosys had lower revenue than TCS, its OPMs and profit were much higher.

Industry observers say that TCS has set the pace for others in the Indian IT industry. Pradeep Mukherji, president, Avasant, an IT outsourcing advisory firm, said, “TCS is one of the most robust companies in terms of their depth in leadership, range of offerings and the extent of geographic reach. Their DNA is completely different.”


IT: Prefer Infosys, TCS, Wipro says Prabhudas Lilladher

October 17th, 2014

According to ISG forecast, broader market ACV lagged, but remains strong YTD . The weakness was in‐line with expectation, and they expect to see a recovery in Q4CY14 with continued strength in CY15. They expect 2014 ACV to exceed 2013 by double digits despite tepid quarter.Outsourcing28

ISG highlighted about the challenges faced by IMS players as cloud infrastructure providers are denting the existing businesses of IMS players. However, ADM+BPO proposition sees a renewed sign of life as Digitization adoption drives newer spends in the segments.

Continental Europe continues to see stronger adoption for Outsourcing/Offshoring from geographies like France, Italy, Spain etc. However, the current trend is very different from earlier wave of Anglo‐Saxons outsourcing wherein India became the focal point of outsourcing centres. Current drive of outsourcing from Continental Europe is pushing for global delivery models  with presence in newer locations like Poland, Brazil, Philippines, etc. But, we do not see any loss in competency for Indian Vendors as they swiftly adopt for GDM.

Among the verticals, Financial Services grew strongly in Americas as new scope contracts return. In APAC and EMEA, manufacturing has witnessed strong growth.

Among the mid‐caps in our coverage universe, NIIT Tech and KPIT Technologies got mentioned in “The Breakthrough 10 Sourcing Standouts” (companies with revenue less than $2bn) in Americas.

CY14 has panned out in‐line with the expectation in terms of deal closures. According to ISG, a build‐up of transaction is likely to yield one of the strongest year in the last one decade. We see Digitization drive as an encouraging trend for Infosys that is in‐sync with their current commentary. We prefer Infosys  , TCS  , and  Wipro  among tier‐1


Infosys needs to keep foot off the accelerator

October 14th, 2014

Infosys knows what it is to lose form. Once the leader of India’s IT outsourcing industry, over the past five years the company has trailed rival Tata Consultancy Services. In that time, TCS has returned 450 per cent and lifted its return on equity by 6 percentage points to 44 per cent. Infosys’ ROE has fallen by almost the same amount, to 19 per cent. Its stock has doubled, but trails TCS’s badly.Outsourcing17

Second-quarter numbers released on Sunday may herald a comeback for the old-timer.

Net income was up nearly a third from the year before, beating analysts’ estimates. And despite volatile currencies, Infosys maintained its ­full-year target of high single-digit revenue growth in US dollar terms. The stock bounced 7 per cent.

A large part of the improvement has come from a pick-up in orders, lifting profitability. Gross margins fell steadily over the three years from September 2010 and hit a low of 35 per cent a year ago. Barclays attributes this mostly to over-hiring on optimistic demand forecasts.

As orders recover, margins in the second quarter have already improved 3 per cent from the lows.

Infosys appointed a new chief executive early this year, Vishal Sikka. Although he has been welcomed as the first non-founder to make it to the top, concerns still linger regarding his focus on innovation. Infosys has about $US5 billion ($5.7 billion) in net cash on its balance sheet. And Mr Sikka says he plans to invest in growth. But previous chiefs’ attempts to move into “higher value” businesses fared poorly. After a shaky couple of years, steady execution is more welcome than a strategic shift. The company did increase its interim dividend by half, paying out 60 per cent of second-quarter earnings. But this can be paid out of cash flow – leaving the cash balance, and worries about a big merger, undisturbed. Mr Sikka thinks Infosys needs two more years to reach full speed. He should make sure the acceleration is safe and steady.


Infosys shares bounce ahead of strategy update

October 13th, 2014

Shares in Infosys jumped 6 per cent on Friday as the Indian IT bellwether reported an improvement in margins and a bonus share issue, as investors await guidance from the company’s new chief executive.Outsourcing14

Vishal Sikka, who took the reins in August, is expected to outline his strategy later today, as the former SAP executive looks to revive the struggling outsourcer with new high-growth software development in areas such as cloud computing and data analytics.

In the first set of results under his leadership Infosys posted better than expected net profit of Rs31bn ($500m) in the three months ended in September, up 29 per cent year-on-year, on revenues of Rs133.4, up 2.9 per cent.

The Bangalore-based group had previously forecast net profit of Rs29bn on revenues of Rs132.1bn, according to analysts’ consensus predictions by Thomson Reuters.
The cash-rich company also announced an interim dividend of Rs30 per share, and said it planned to issue one bonus share for every share held.

“The board approved and recommended the issuance in order to increase the liquidity of its shares and to expand the retail shareholder base,” the company said.
The second quarter of the financial year is a seasonally strong period for the IT services sector, as client spending is solid. Indian groups have also been helped by currency movements and the fact that wage increases occurred earlier in the year.

“This is sentiment positive for the stock,” says Ankita Somani, an IT analyst at MSFL research. “But what I want to see now is what Infosys is planning in terms of its big bets? What are they going to do to catch up with peers in terms of dollar revenue growth rates?”

A pioneer in the IT outsourcing sector, Infosys has fallen behind rivals such as Tata Consultancy Services, and Mr Sikka has suggested it may be another two years before the group’s financial results improve again.

Mr Sikka on Friday said that the company’s core services business would not be compromised by the new focus on innovation. “Without one we are just dreamers and without the other one we are just grinders,” he said.

Industry analysts remain concerned about high staff turnover at the group. At least 10 senior executives have quit in roughly a year, prior to Mr Sikka’s appointment and the new leader is not planning further restructuring.

“We are very fortunate to have a young, dynamic and a very passionate management team,” Mr Sikka said. “I see no structural reasons to make any changes at this point.”
The churn began after co-founder and outsourcing pioneer, Narayana Murthy, returned to the group to shore up the troubled company.

Before he stepped down as executive chairman in June, Mr Murthy had focused on cutting costs and reinforcing Infosys’s bread-and-butter services business, following a mistimed attempt to move into higher value services under the “Infosys 3.0” strategy.

“This is the right time, when the macroeconomic environment is improving, they have a new leader who’s a tech visionary,” said Shashi Bhusan, an analyst at Mumbai-based brokerage Prabhudas Lilladher. “I think many of the initiatives they started two or three years back will flourish under this new leadership.”
Infosys shares were up 6 per cent by 10am in Mumbai at Rs3,837.70.


Top 5 IT players likely to report robust growth in Q2

October 9th, 2014

Top IT stocks fell sharply on Wednesday after touching record intra-day levels a day earlier. Citi Research India, in a report, said it was toning down optimism over the sector’s future performance, apart from downgrading Infosys ratings from buy to neutral, Tech Mahindra from neutral to sell, and Mindtree from buy to sell, a move which left investors wary of the sector. These stocks may exhibit greater volatility in coming weeks, depending on the quarterly performance of the companies.Outsourcing3

However, despite the scepticism, top five IT players are expected to report robust sequential growth in revenue and net profit for the September 2014 quarter because of better demand traction in the US and a reviving European market for IT outsourcing. A lack of sharp appreciation in the rupee against major currencies compared with the quarter-ago levels, too, augurs well.

The sample of TCS, Infosys, Wipro and Tech Mahindra is expected to report a growth of 5.7% in sales and 3% in net profit sequentially. It’s based on average of estimates reported by eight brokerages, including Barclays Research India, Citi Research India, Edelweiss Securities, Kotak Institutional Equities, Motilal Oswal Securities, MSFL, Anand Rathi Research and Religare Institutional Research, and internal estimates of the ET Intelligence Group.

Compare this with a lacklustre 0.1% growth in revenue and 1.9% drop in profit sequentially for the June 2014 quarter. TCS will stand out due to expected higher organic growth and the benefit from integration with Mitsubishi joint venture.

Historically, the demand scenario is upbeat during the September quarter for Indian IT outsourcing companies. This will benefit top players such as TCS and HCL Technologies, which have shown aggression in bagging large multi-year projects from the US and European clients.

Among the top five, TCS is expected to report the highest dollar-denominated revenue growth of 5-7% sequentially. Apart from growth in existing business, it also includes an increase of 2-2.5% due to integration of revenue from the joint venture with Mitsubishi. This will translate into 8% growth in revenue at Rs 23,847 crore, according to average estimates.

Other players in the top five are likely to report 4-4.5% revenue growth in rupee terms. Apart from revenue growth, TCS will also lead the pack on the net profit front with a likely 7% growth sequentially. Companies including Wipro and HCL Tech are likely to show deceleration in net profit due to the impact of increase in wages. Their operating margin is expected to drop by 30-40 basis points.

Investors will closely track the management commentary of Infosys for initial signs of recovery. It will be the first full quarter for the company under new CEO Vishal Sikka.


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