The recently announced quarterly results have indicated that the Indian IT major Infosys is on a road to recovery after a period of challenging times. The company has predicted a growth of 8.5-9 per cent for the fiscal 2019 and achieved double digit growth in the third quarter. While some experts say that the new CEO Salil Parekh is taking the company on the right track, some feel that the added costs due to increased hiring in on-site locations abroad, especially in the United States, will hit the company's margins and increase its costs. However, the external environment in the US helped the company in achieving the much required double digit growth in the quarter that it had been looking for quite sometime.
“Software margins squeezed thanks to President Trump's ‘buy local’ policy. Companies are forced to recruit locally and pay more wages. Most of the Indian IT company's top line goes up as they bill in US dollars but at the same time their bottom line has been affected due to squeeze in margins. Basically, the software services industry is more of a labour arbitrage where contractor is expected to suffer increasing dip in margins as they start sourcing people locally. The implication to software professionals in India is that their chances of travelling and settling overseas is coming down drastically. It is clearly visible as Infosys and other companies have increased their overseas hiring. Going forward, there will be a change in the company's hiring patterns as there will be less of domestic recruitment and even there the focus will be on hiring high skills people,” Kris Lakshmikanth, the founder and CEO of the executive recruitment firm Head Hunters India told THE WEEK.
Lakshmikanth also observed that Infosys has done the right thing by not selling Panaya and Skava as the can very well utilise these platforms to increase business. “Other firms such as TCS and Accenture are also having different platforms to expand their business and Infosys can do the very same with Panaya and Skava,” added Lakshmikanth.
Similarly, experts such as Apurva Prasad and Amit Chandra, analysts at HDFC Securities feel that during the Q3 of FY19, Infosys that had posted strong revenue performance, robust large deal bookings increased its FY19E revenue guidance and have maintained a positive outlook for this IT major. “The company's management had raised the revenue growth guidance to 8.5-9.0 per cent for FY19 from the 6-8 per cent that was projected earlier. Strong large deal trajectory is providing better growth visibility to the company and the company's continued traction in BFSI and stability in large accounts with the top accounts growing at 4.2 per cent QoQ will continue to drive the growth for the company,” remarked the experts.
They also opined that besides growth, the operating performance of the company was soft impacted by accelerated hiring, lower utilisation (seasonality impact) and higher on-site mix (large deal transition).
Alok Shende of Ascentius Consulting in Mumbai feels that a mere quarterly growth is too early to reach a conclusion on the performance of the company in the long run. “Turnaround will take time as the damage done by the earlier CEO Vishal Sikka is yet to get over. Parekh is trying to take the company towards growth which is aided by good growth particularly, in the US market. However, in case the external environment changes, and there is a change or recession to hog the US market, it can go against the company. Many CEOs in other firms had also tried to turnaround their firms, for instance, T.K. Kurien of Wipro tried to turnaround the company's business in the healthcare vertical but it took time. Similarly, Parekh will also take time but a good external environment may help him.”
