Infosys is Out of Rehab, Looking Lean and Hungry
By Reuters | Published: 10th January 2014 01:12 PM |
After seven months of rehab, Infosys is looking lean and hungry enough to wolf down some large outsourcing deals in 2014.
The Bangalore-based software services company says revenue might rise as much as 12 percent in the year to March. Just nine months ago, the stock fell 22 percent in a single day on management's gloomy forecast that full-year sales growth could be as low as 6 percent.
The combination of an improving global economy and a weak rupee helped to put Infosys on the road to recovery. But co-founder N.R. Narayana Murthy's decision to step out of retirement and rejoin the company as executive chairman also stabilized the patient. Margins, under pressure since 2011, are improving as Murthy prunes expensive staff working in clients' offices and moves more work to India. Earnings before interest and tax reached 25 percent of sales in the three months to December, up 1.5 percentage points from the September quarter.
(Value in Crore)
Murthy's return has not been without upheaval. Eight senior executives have quit since his return. The company is also seemed struggling to retain talent at mid and junior levels, with 1,823 people leaving the firm in the October-December quarter.
Rather than disrupt operations, however, the departures appear to have ended the leadership confusion at Infosys. The company recently decided to scrap its bloated executive council and supplant the bureaucracy with two presidents. One of them could replace current chief executive S.D. Shibulal when his term ends in March 2015.
Investors will now want to see what other tricks Murthy has up his sleeves apart from cutting costs. What's needed is a big jump in productivity. On average, an employee based at a client site overseas generates three times as much revenue for Infosys as a worker in Bangalore.
But the "body-shopping" model - inundating America with low-cost temporary immigrants - is no longer viable as an already-tight visa regime becomes even stricter. In November, Infosys agreed to pay the U.S. government $34 million to settle allegations of immigration-related "paperwork errors." So it makes sense for Murthy to bring more work back home, while seeking to boost the productivity of the Indian techie. Unless he succeeds in this crucial endeavour, the 47 percent revival in Infosys' stock price since his return might start looking excessive.
Infosys, reported a 21.4 per cent increase in net profit to Rs 2,875 crore in the third quarter ended December 31.