Infosys Q3 results today: Five things to watch out for
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Bengaluru: Another quarter and another downward revision in growth.
Infosys Ltd is expected by at least three brokerages to scale down its full-year dollar revenue growth for the third time this year when India’s second-largest software firm declares its third quarter results on Friday.
This is not surprising, considering the negative cross currency impact and also partially, on account of management’s inability to give a firm guidance. Still, 2015-16 is turning out to be roller-coaster ride for Infosys chief executive officer (CEO) Vishal Sikka.
Till a year ago, Sikka seemed to have settled well and appeared to be enjoying his job (from playing cricket with employees in Mysuru to the after-results parties with senior management ranks).
By December, Sikka came across as a different boss, unhappy with the progress made by the company, and heard telling his colleagues how he has been unable to implement things he had planned when he took over the current job in August 2014.
In April last year, Infosys projected to grow at-best at 13.8%; now it will end the year in March with a less than 8% revenue expansion.
Agreed, falling growth at Infosys mirrors the problems faced by the industry at-large: Nasdaq-listed Cognizant Technology Solutions Corp. scaled down its full-year growth on three times last year, and will grow at 9%.
However, slow business from clients is just one area of concern. A bigger challenge is that, bit by bit, Infosys’ early turnaround plans put in place in January 2015, seem to be fizzling out. Retaining senior management is another headache for Sikka. Although overall attrition continues to be stable, five executive vice presidents (EVPs) left Infosys last year, compared to three EVP departures in the first 17 months of Sikka’s tenure (1 August 2014—31 December 2015).
Sikka’s record to make the company future-ready, by having $2 billion from newer technologies and platforms, and another $1.5 billion from mergers and acquisitions and finally by improving its revenue per employee to $80,000 by March 2021, is patchy at best. This is not to pooh-pooh Sikka’s efforts; he has tried his best till now. But Sikka’s best seems to have not made a dent in an insular organisation like Infosys. How can Infosys embrace the new technologies if it shies away from acquisitions (Infosys has not made a single acquisition in the last 15 months)? During this time, Wipro Ltd spent over a $1 billion in buying companies. Most worrying is that despite Sikka’a repeated missives to employee to shape-up and embrace automation platforms in projects and learn newer skill sets, Infosys’s revenue per employee refuses to improve.
Finally, assuaging investor concerns, many of whom are now getting jumpy over some of the founders reported unhappiness with the CEO, is a big challenge. Despite Infosys estimated to grow faster than Tata Consultancy Services Ltd (TCS) in the current year, Infosys shares were down 8.4% as against a 7.7% decline in IT index last year. Infosys shareholders increased their wealth by 32.3% (as against a 14.21% return made in IT Index) in the period between 1 August 2014 and 31 December 2015.
With this as the backdrop, Mint brings to you five things to watch out for when Infosys declares its earnings on Friday:
Revenue forecast: Brokerage BNP Paribas sees Infosys recording a 1.5% sequential decline in dollar revenue (declining 0.5% in constant currency terms) at $2.55 billion for the October-December period. Management is further expected to narrow its full-year dollar revenue growth to less than 8%. This could set alarm bells ringing for investors as this suggests that Sikka’s new measures to turnaround the company are taking longer than earlier expected.
Senior management exits and steps management is taking to arrest attrition: A bigger headache for Sikka in this financial year is turning out to be the departure among senior management ranks. Exits of senior employees is leading to poor execution, a reason Sikka has conceded in the past behind company’s underperformance.
Where is the new in old Infosys? To Sikka’s credit, Infosys over the last few years has hired people in the areas of artificial intelligence and pushed to embrace automation platforms. But the proof of the pudding is if indeed Infosys has been able to deploy some of these technologies to either improve its profitability or win business from newer companies which are acting as agents of disruption. Has Infosys won any business from companies like Uber or Airbnb or Facebook? It is over two years since Infosys first detailed its ambition of becoming a $20 billion firm by March 2021, and yet the management shies away from disclosing the progress made from monetising platforms.
What is the challenge in translating business from large deal wins? Infosys under Sikka has significantly improved its large deal wins in a quarter ($809 million in April-June period and over $1 billion in the July-September period). For some unexplainable reason, this improved deal win is not translating into growth. Management clarity on this theme will be important.
Infosys Consulting, BPO and Edgeverve continue to remain weak: Since August 2014, EdgeVerve and Infosys BPO units continue to underperform. Together, both accounted for a little over 13% of its $9.5 billion revenue last year. Infosys consulting was the third weak area at the beginning of this financial year. All three units now have new leaders, and any significant growth for Infosys can come only if there is growth in at-least one of these units.