Infosys says on track to meet $20 bn sales target by 2020

Firm eyes acquisitions to boost revenue, sees significant business from big data platforms and Internet of things


Infosys chief operating officer U.B. Pravin Rao says the IT firm will look at also buying firms that will shore up revenue, versus its strategy of investing in firms that have new-age technologies. Photo: Abhijit Bhatlekar/Mint
Infosys chief operating officer U.B. Pravin Rao says the IT firm will look at also buying firms that will shore up revenue, versus its strategy of investing in firms that have new-age technologies. Photo: Abhijit Bhatlekar/Mint

Bengaluru: Infosys Ltd is confident of achieving its ambitious target of hitting $20 billion in sales by 2020 despite the pall of economic gloom hanging over the Indian information technology (IT) industry, a top executive at the firm said.

“We believe it is very much doable. We do not doubt and we believe there is enough and more opportunity for a company, which is not complacent, able to think differently, and executes this well,” Infosys chief operating officer U.B. Pravin Rao said in an interview this week.

The comment comes less than 10 months after India’s second largest software firm first outlined its ambitious target. The optimism comes just days after rival Cognizant Technology Solutions Corp. issued a weak sales forecast of 10-14% growth this year, versus 21% last year (2015).

Uncertainty over a global economic recovery is making many large global banks (which spend the most on IT) put their technology spending on hold.

Recently, industry body Nasscom projected a lower outlook of 10-12% growth for India’s $146 billion IT sector in 2016-17 versus 12.3% growth in the year ending 31 March.

Infosys remains on track to achieve its goal and if chief executive Vishal Sikka’s strategy of “new and renew” is executed well, it can grow up to 5% above Nasscom’s guidance in the next four years, Rao said.

To achieve its goal, Infosys will look at also buying firms that will shore up revenue, versus its strategy of investing in firms that have new-age technologies and will help over the longer term, furthering Sikka’s ambition of bringing $1.5 billion in business from mergers and acquisitions.

The company also expects significant business from big data analytics-powered platforms and Internet of things as part of its outlook of generating $2 billion in business from new-age technologies by 2020.

Its tie-up with conglomerates such as General Electric on cloud computing platforms (GE Predix) is a case in point.

“If you look at the last few years, TCS (Tata Consultancy Services) and Cognizant grew 17-18%. The industry grew at-best 13%. So it is possible for someone who is executing well to grow 3%, 4%, 5% higher than industry,” Rao said on Monday.

When Infosys shared its aim of becoming a $20 billion firm by 2020 last April, it meant the firm had to grow at an annual compounded growth rate of 18.11% a year from its revenue of $8.7 billion in 2014-15. Even if Infosys grows at the high-end of its 9.3% guidance, it will end with $9.5 billion in revenue by March 2016.

This will require Infosys to now grow at a higher compounded growth rate of 20.4%.

“We said that $1.5 billion will come from inorganic acquisitions, $2 billion from mostly digital technologies and platforms. The remaining $16.5 billion is from traditional services business. Reaching $16.5 billion is doable if we execute well,” said Rao. Infosys needs to grow at an annual compounded growth rate of 14.8%, as against 13.66% from its revenue in 2014-15, to get to $16.5 billion in commoditized outsourcing business.

Rao, who joined Infosys in 1986 as a software engineer, said scaling up business from traditional outsourcing is easier than generating $2 billion revenues from the digital space for now.

Those steps include making its over 100,000 engineers (who write codes) think imaginatively by using the user-centric approach of Design Thinking to generate more business from existing clients.

The change in approach has helped Infosys increase the number of large deals to $800 million from $400 million in the year-ago period. The management further expects it to increase the number of large deal wins to “at least $1.5 billion in a quarter” in the next financial year, although Rao declined to put a timeline. Infosys will also buy firms to drive revenue.

Since the start of 2015, Infosys has spent $390 million in buying three companies, including $200 million on automation firm Panaya, $120 million on mobile commerce firm Skava, and $70 million on Noah Consulting.

Rao declined to share the revenue of these companies although the three firms are estimated to have less than $100 million in revenue, according to executives at Infosys who did not want to be named.

“Right now the acquisitions have been mainly technology acquisitions because the focus for now was technology acquisition. We will have a mix of both technology and those that will drive revenues. That is the thinking as part of 2020 vision,” said Rao.

Rao said that the company’s third aim of generating “$2 billion” from platforms and digital business remains the more challenging one.

Some analysts tracking Infosys remain confident that the management led by Sikka has started on a good note.

Infosys has “a solid base in place for FY17”, Pankaj Kapoor, director of India IT services and software equity research at JM Financial Institutional Securities Ltd, wrote in a January note titled Picking Up Momentum.

Kapoor sees Infosys exiting FY16 with at least $2.8 billion worth TCV (total contract value) fresh order book, a 45% increase over the prior-year period.