Vishal Sikka's Infosys beats estimates, Q2 net up 28.6%

BANGALORE: Infosys announced better-than-expected revenue and profit growth for the July-September quarter and cheered investors with a generous dividend and bonus.

The Bangalore-based company’s profit grew 28.6% in the second quarter. However, Friday was dominated by CEO Vishal Sikka’s enumeration of the strategic direction in which he is leading the country’s secondlargest software exporter.

Sikka, 47, the first non-founder to take the top job at the Bangalore-based company, promised to remake Infosys as a “next-generation company” as he attempts to balance the twin priorities of pushing growth momentum in the traditional business while preparing to compete for leadership in technology areas such as social, mobile, cloud computing and data analytics.

“We not only aspire for consistent and profitable growth but indeed to get back to being a bellwether company for the industry,” said Sikka, a former member of the board at German software company SAP who took over as CEO in August after founder N R Narayana Murthy surprisingly decided to step away after returning as chairman last June. “And we want to do that on the basis of innovation, on the basis of technology.”

Infosys kicked off earnings season with second-quarter revenue of $2,201 million. At 3.2%, revenue growth over the previous quarter was robust by Infosys’ standards and good augury for the rest of the industry.

The company did not, however, alter its guidance of 7-9% growth for the year to March 2015. Software body Nasscom has forecast 13-15% growth for the industry. Operating margin improved by 100 basis points to 26.1%.

Dividend of Rs 30 a Share

Consolidated net profit rose to Rs 3,096 crore in the July-September quarter, 2014-15, from Rs 2,407 crore in the year-ago period. "On several fronts, our efforts to bring in operational efficiencies yielded encouraging results during the quarter", said chief operating officer UB Pravin Rao. "We have seen positive results of some of our interventions on sales, margins and attrition, and we will continue to focus on these areas."

Infosys declared an interim dividend of Rs 30 a share, compared to Rs 20 a share in the previous year. The company also announced a bonus issue of one share for every share held, helping push the companyfs stock higher by as much as 7.1%, outpacing the benchmark Nifty index on the National Stock Exchange which was down nearly 1%.

Sikka, who is regarded as the main architect of SAP's blockbuster HANA platform for realtime analytics, said much of his strategy is work in progress. He promised details about milestones around April next year and predicted it will required 2-3 for "meaningful benefits" from the new blueprint for Infosys.

Analysts are of the view that much of the optimism about Infosys is because of "Sikka the man" referring to his credentials as a technologist, entrepreneur and high-ranking executive at one of the world's leading software companies.

I am not very optimistic until FY17,h said an analyst at a foreign brokerage, saying it will be at least two years before Infosys can match industry growth rates. While Sikka goes all-in by committing to technologies such as artificial intelligence and automation, experts are of the view that implementation could prove to be a challenge. "The main challenge for Sikka is cultural transformation that impacts each and every business function at Infosys," said Frederic Giron, vice-president and research director at Forrester Research.

In the immediate future, the biggest worry for the company could be the continued exodus of staff, including senior management, with the attrition rate touching a record high of 20.1% at the end of September 30, compared to 19.5% at the end of June. However, Infosys said that it expects attrition to come down in the next couple of quarters to 13-15%.

Moreover, Infosys added a net of only two clients during the quarter.