Infosys Poised for future growth

The last few years of stable leadership and market-aligned strategy delivered double-digit growth for the company

Revenue

Rs 1,239,360 mn

Founded four decades back, Infosys is the second largest (INR 12,39,360 million in FY’2022) IT services company in India in export revenue with a headcount of 3.14 lakh employees. The company has been ably led by Salil Parikh, MD & CEO, for the last four-plus years. During this time, Salil, along with Nadan Nilekani, Co-Founder and Non-Executive Chairman, had teamed up and charted a new growth path for the organization, ticking almost all the boxes on the performance parameters year after year. Despite macro risks, such as the continued impact of the pandemic and European conflict disrupting the supply chain, elevated inflation, interest rate increases and the possibility of a slowdown in the US; the organization has delivered good annual performance during FY’2022. Infosys grew by 20.3% over the previous year’s revenue.

The success mantra of their consistent performance was their drive to enhance digital revenues, which has a more robust growth momentum throughout the year, and it now contributes close to 59.2% of the total revenue from 25.5% four years back. Today, the BFSI segment accounts for the most significant chunk of the revenue for company, followed by retail, energy and utilities, and communication. At the same time, North America and Europe are its major contributing geographical regions.

Infosys has driven its growth strategy based on five pillars (C.L.O.U.D)

C: Catalyse digital transformation

The company’s Cobalt cloud capabilities are marketleading across infrastructureasa-service, platformas-a-service, and software-as-a-service realms. Infosys’ early investment in cloud capabilities helped the company to outpace the market growth rate and gave it a good vantage point to gain further market share in the cloud space. The digital and cloud areas were the key growth drivers for the organisation. This segment of the industry is growing at a 14-16% CAGR. Digital projects contributed 59.2% of revenue in Q4FY22, growing 40% YoY in CC, with Cloud’s share growing even faster. The organisation focused on investing in digital competencies and revitalising its sales team, which has helped the company drive its digital business.

“Factory of preconfigured automation bots and LEAP, a platform for optimising large-scale application maintenance and reengineering, has strongly come into play. Execution of digital capabilities through consistent investments have succeeded.”

L: Localisation in markets like the US, Europe and Australia

The organisation has chased discretionary and project-based IT spending amidst macro uncertainty. A high localisation strategy has helped the company deliver, and de-risk, its operations from regulatory changes, including Visa uncertainties. In FY 2022, Infosys hired over 14,805 local employees, including 3,650 freshers across critical markets in FY2022. Infosys boasts of a strong business in Europe. These regions are a key growth driver, with large European companies showing greater willingness to look at digital transformation. Infosys is strengthening its localisation strategy by hiring local talent in its markets, such as North America, Europe, and APAC.

O: Opportunities boosting its clients’ technology landscape with new emerging technologies

Infosys continues to build its data, analytics, AI, cybersecurity, and IoT expertise and invests in more robust partnerships with the global cloud hyperscalers such as AWS, GCP and Microsoft Azure, and other key SaaS providers. The company invested in building the required competencies and capabilities to deliver on these areas, aligning well with customer expectations. Infosys’s investments in enhancing its automation capabilities and platforms, including its Bot Factory of preconfigured automation bots and LEAP, a platform for optimising large-scale application maintenance and reengineering, has strongly come into play here. The execution and augmentation of digital capabilities through consistent investments have steered Infosys back on its high-growth trajectory.

U: Unique Skill & Talent Pyramid Build-up

The industry has been facing severe supply-side challenges over the past few quarters due to strong demand and a need for more digital talent. Infosys was impacted by the same factor, which was pretty evident in its attrition rate, which increased from 10.9% at the end of last year to 27.7% in Q4FY’2022. The company finally hired 84,782-plus fresh graduates closer to FY2022 instead of its earlier fresher hiring plan of 25,000 at the beginning of the year to meet higher demand. This threefold increase over the last year does not hinder any execution risk, given its strong training capabilities. Infosys has focussed on enhancing engagement with employees and providing faster and more predictable advancement in their careers - Thus, building a unique employee pyramid structure catering to the rising needs of the industry.

“Our analysis predicts faster growth in FY23E than in the previous year. The company will likely hire another set of 50,000 freshers to cool off the supply-side challenges and improve margins by reducing lateral hires and replacing subcontractors.”

D: Deal Signing Momentum

Another reason for its consistent performance was a steady growth in winning more significant deal engagements and net new clients supported by deal advisors, consulting firms, and private equity players. Infosys continued to focus on the large deal resulting in a deal TCV of USD 9.5bn in FY’22, which is close to 3x over since Salil took the leadership of Infosys. The deal signing saw nearly 94 sign-ups, totalling $ 9.5bn for the year. Its revenue from the top 5/10/20 accounts increased by 25.2%/25.3%/23.4% YoY in FY2022. The number of $200 million and $100 million clients increased by five and six on a YoY basis to 12 and 38, respectively, while $50 million and $10 million clients grew by five and 23 on a YoY basis to 64 and 275, respectively. Interestingly, the rate of client addition in the $100 million bracket has been more than the $50 million bracket, indicating the company’s proven capability in addressing large-scale complex transformation programs

Future Outlook

Infosys has outpaced TCS in revenue growth terms over the last three years. Our analysis predicts faster growth in FY23E than in the previous year. The company will likely hire another set of 50,000 freshers in FY2023E to cool off the supply-side challenges and improve margins by reducing lateral hires and replacing subcontractors. The fresher onboarded in FY2022 are expected to rationalize their pyramid structure in FY2023 as they will become billable. The business momentum will likely continue in FY2023E, given digital competencies and deep capabilities that are most relevant to customers. Large Enterprises are expected to maintain an IT budget despite a slowdown to gain market share and efficiencies, seen during Covid. Infosys is well-positioned to catch up with leaders on revenue growth in the coming years.

Key Wins

• Infosys Equinox Collaborates with Packable to Help its Direct-to-Consumer E-Commerce Offerings for its Brand Partners

• Infosys Selected by Orion Corporation to transform its ERP and Planning Platforms

• Australian Open and Infosys extend Digital Innovation Partnership until 2026

• Union Bank of India Offers WhatsApp Banking powered by Infosys Finacle

• Infosys - Foundational Partner in Launch of Google Cloud Cortex Framework

• Guidewire Announces Infosys as New Consulting Alliance Partner

Salil Parikh, CEO

By Thomas George

thomasg@cybermedia.co.in