Under the new CEO, INFOSYS has forged alliances with the likes of Hitachi Data Systems, Huawei, Tableau software, and extended relationships with Microsoft and Amazon in order to facilitate adoption of new technologies across its clientele. INFOSYS has set aside USD 50 Cr for investments in startups, including USD 25 Cr for India-based start-ups, and the company is also looking at partaking in every new innovation that can possibly go on to improve the company’s prospects. Its investments in Whoop and CloudEndure a startup that provides Cloud Migration and Cloudbased Disaster Recovery (DR) software are a couple of examples of the same, its recent acquisition of Noah Consulting, LLC, which is a leading provider of advanced information management consulting services for the oil and gas industry. Infosys has also invested in WHOOP, an early stage company that offers a performance optimization system for elite professional sports teams. Infosys has also and is working for great projects across the globe such as the power engineering major ALSTOM selected Infosys for next-generation services in application engineering, development and maintenance, in addition to product lifecycle management to reduce IT costs, improve user experience, and increase the efficiency of the product design process. The MRJ90, the flagship aircraft of the Mitsubishi Aircraft Corporation, Japan (MITAC) recently completed its maiden test flight and Infosys helped MITAC in the mechanical design of fuselage structures, delivered continuous improvements through automation, and reduced both the cost and cycle time. Mercedes Benz Research and Development Centre, India, has partnered with Infosys to run their complete data-centre and network operations support in 15 countries across the APAC region, increasing agility and automation and reducing cost of operations. DNB Bank of Norway selected Infosys to transform their application landscape. Applying AiKiDo, the company will leverage knowledge-based non-disruptive renewal to evolve DNB Bank’s entire Data cluster, data warehousing services, regulatory reporting, and ERP functions. Commerzbank also choose Infosys for a multi-year application management program to develop a post trade utility for the bank, leveraging principles of Design Thinking and the AiKiDo framework to simplify application architecture, standardize and improve processes, and drive cost efficiency. Since taking over as CEO of Infosys in August 2014, Dr. Vishal Sikka, who was earlier on the executive board of SAP AGs, first rolled out initiative named Design Thinking workshops at many of the company’s facilities across the country. According to the management, over 70,000 of its employees have undertaken a day-long class in Design Thinking, first popularized by IDEO, a California-based consulting firm. Later, Infosys rolled out Zero Distance initiative, because it wanted its engineers to apply the learnings of Design Thinking in each of the projects. Infosys Ltd believes Zero Distance, the newest initiative which is aimed to make its engineers think imaginatively, is an extension of the user-centric process of Design Thinking to help the firm have a tangible and valuable impact for its clients, as the company aims to become a $20 billion next-generation services software firm by the year 2020. The Infosys management believes that the Zero Distance is a very specific application of Design Thinking principles as it outlines for thousands of project managers a five-point roadmap to “jump-start innovation” within their project. Zero Distance initiative will help Infosys’s clients save more than $1 billion a year. This is the first time chief executive Dr. Sikka has put a number to measure the success of the approach introduced in March last year. Under the Zero Distance initiative - the software engineers have either come up with a more efficient way to complete a project or have gone beyond the scope of work to offer new solutions in over 90 % of the 8,500 master projects currently underway. Zero Distance along with the user-centric approach of Design Thinking would emerge as two of the most successful initiatives of Dr. Sikka. Design Thinking has helped the company more than double its share of large deal wins from less than $400 million in a quarter to $900 million in a quarter. Design Thinking is a framework, or a scaffolding, for creativity and innovation. It emphasizes empathetic ‘problem finding’ and iterative ‘problem solving’. It works well in an environment of ambiguity, but great opportunity such as all digital transformation initiatives. These initiatives are helping to bring about a cultural change in the way the 35-year-old firm has traditionally done business. These initiatives have even succeeded at major accounts where cost savings and more efficient approaches been recorded, and even business model innovations are being presented to clients that in the past would have been ignored. Looking the acquisition coupled with the large and variety of projects Infosys surely has the upper hand in the industry and has all the factors that can drive growth in the IT sector.
There are number of initiatives that were kick-started by Vishal Sikka. It highlighted that it has improved the number of engagements with its platforms including Infosys Information Platform - IIP with more than 200 engagements, Infosys Automation Platform – IAP with 121 engagements, Panaya, and Skava. All these innovations resulted in significant savings in efforts for the company which helped it to free 1,100 odd people in 3QFY16 on top of 800 done in 2QFY16. Infosys reported net employee addition of 5,400 during the quarter. The company stated that more than 69,000 of its employees have undergone training in Design Thinking, which is helping it to develop good innovative solutions and has changed the nature of conversation with clients. The Employee attrition rate declined from 19.9 % in the previous quarter to 18.1 % in 3QFY16. The quarterly annualised attrition rate declined from 14.1 % to 13.4 % sequentially. This is the lowest level of attrition which the company witnessed in the past 15 quarters. The rise in visa costs could potentially hit the company’s margins by 0.30 % to 0.35 % in FY17E based on the current assessment of Infosys. The management stated that revenue growth surpassed its own estimate on account of lower-than-expected furloughs and mitigation of certain client-specific problems. It also indicated no financial impact from Chennai floods. Following a good quarter, Infosys revised upwards its CC revenue growth guidance for FY16 from 10.0 % to 12.0 % earlier to 12.8 %to 13.2 %, while USD guidance was upped from 7.2 % to 9.2 % to 8.9 % to 9.3 %. The company maintained its margin guidance band of 24 % to 26 % for FY16. Infosys reported EBIT margin of 24.9% for 3QFY16 versus 25.5% in 2QFY16, leading to margin contraction by 60bps. Infosys indicated that it was well positioned to achieve industry-leading growth in FY17, a goal it had set for itself about two years ago. The management also highlighted that IT services budgets in CY16 will remain flat to marginally down. There will also be a downward revision in Energy vertical. Players with the right mix of offerings – Automation and Innovative Solutions - will continue to grow, despite flat budgets. The company also maintained its 2020 target of a 30 % margin on the back of increased adoption of automation capabilities. After Vishal Sikka came in as CEO, Infosys became more focused on customers with introduction of new initiative, making senior consultants responsible for selling the entire stack of services to their allocated clients, re-engineering Request For Proposal or RFP response process, etc and on delivery that is bringing in more automation to services like IMS and BPO – fast growing service lines for the industry where Infosys lost market share over the years, getting grassroots innovation going through suggestions from project-level employees, etc. Thus, it is very likely that Infosys will gain market share and grow above industry. The industry itself is unlikely to grow at more than a high single-digit rate over FY16E-FY18E. The Net Sales and PAT of the company are expected to grow at a CAGR of 15 % and 12 % over 2014 to 2017E respectively. At the current market price of Rs. 1175.55, the stock is trading at PE of 20.06 x FY16E and 17.97x the FY17E. Earnings per share (EPS) of the company for FY16E could be seen at Rs. 58.59 and Rs. 65.39 for FY17E. It is expected that shares of INFOSYS to hit all time high soon and the company will keep its growth story intact in the coming quarters also and can be a good pick from this IT sector. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also.
|SALES (₹ Crs)||53,319.00||61,948.90||70,612.10||80,113.80|
|NET PROFIT (₹ Cr)||12,329.00||13,305.40||15,582.50||17,637.00|