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Infosys kicked off the earnings season with a generous Diwali bonus but its stock is unlikely to be re-rated yet, as the company has maintained its revenue forecast of seven to nine per cent for this financial year. The company surprised the Street with a 3.1 per cent sequential growth in dollar revenue but continues to lag sector growth. Nasscom expects the sector's revenue to grow 13-15 per cent in FY15 and Infosys continues to grow in single digits. Analysts believe the company had indicated the second half of FY15 would be better, which implies volume growth higher than the first half’s seven per cent. Factoring this, analysts believe the forecast could be increased.
After strong dollar revenue growth in the September quarter, Infosys needs to grow at 1.4 per cent for the remaining two quarters to meet seven per cent revenue growth and at 3.8 per cent to meet the upper end of the forecast (nine per cent). Infosys also surprised the Street with a strong expansion in margins, despite several one-time expenses. Operating margins expanded 100 basis points sequentially to 26.1 per cent, on high utilisation and decline in the rupee.
More than the financial performance, the Street was expecting newly minted-chief executive Vishal Sikka to lay out a road map for the company. His mantra for change is 'Renew and New.' It is to reorient service offering so as to help clients renew business processes and systems in the digital world. Also, the offering is to help clients enter new markets and make new offerings. But before it does this for clients, Sikka will ensure Infosys embraces the 'renew and new' model in letter and spirit.
Over the past 70 days, Sikka has been engaging with about 100 customers and technology partners. The company is already working with Cisco to retrain the sales force and redesign delivery systems. Sikka mentioned the words artificial intelligence and automation innumerable times while talking about improving the productivity.
Sikka also said there would be no major change in the top management. The other big concern of the market has been the company's conservative approach to acquisitions. Sikka maintained the company would look at acquisitions to acquire new capabilities and not new revenues. He intends to lead the transformation process from the front.
