Murthy Mantra Working For Infy, But Should You Go Gung-ho?

Infosys seems to be back on track, slowly making its way to the pole position it has lost for some time now. True, the NYSE-listed IT firm is still struggling with the visa issues in the US and missed the street estimates for the second quarter ended September 30, 2013. But that has not deterred India’s second-largest software services exporter from recording some healthy growth. Interestingly, this is its first full-quarter earnings after co-founder NR Narayana Murthy came out of retirement and returned to chair the board.

But did the iconic business leader manage to right the floundering firm? Let’s have a quick look at the numbers for the 2nd quarter and find out. Infy has reported 1.6% rise in consolidated net profit to Rs 2,407 crore, compared to 2,369 crore in the same period a year earlier. That’s not mind-blowing, but certainly speaks of growth, in spite of a volatile market and a depreciating Rupee.

Its consolidated revenue has also soared 31.5% to Rs 12,965 crore, from Rs 9,858 crore in the year-ago period. Overall, revenues rose 15% to $2.07 billion in July-September quarter, from $1.80 billion in the same quarter last fiscal.

The Bangalore-headquartered IT giant has raised its dollar revenue guidance to 9-10% for the full fiscal as against the previous forecast of 6-10%. It has also revised rupee revenue guidance to 21-22%, again up from 13-17% earlier. Conservative estimates, no doubt, but things seem to be moving now.

“During the quarter we witnessed broad-based volume growth, robust client additions, five large deal wins and increased sales momentum of our Big Data and Cloud offerings. This growth is a result of our focus on execution, which helps our clients achieve their objectives,” said SD Shibulal, CEO and managing director of Infosys. “We will continue with planned investments and initiatives to explore new avenues of growth. We remain watchful of the sustainability of improving global economic fundamentals,” he added.

Incidentally, Infosys has added five US Fortune 500 companies to its client list and globally won five large contracts in Q2 ($50 million-plus multi-year deals).

That’s all very well, but is the market feeling equally upbeat? The stock jumped as much as 7.5%, but later lost the momentum and closed just 4.79% higher at Rs 3,273.90. Does that mean the numbers are still not looking attractive, at least not in the short term? The cut-throat competition in the technology sector (from the likes of Tata Consultancy Services, Accenture and more) can further impact its growth prospects and the recent exodus of its top-rung employees would not help either.

So are we back to the basics? Murthy’s presence and sound strategies (going after big-ticket but plain vanilla outsourcing contracts is one among those) are undoubtedly pushing the firm. But is he ready with a long-term vision? It is nice to know that employee efficiency is picking up and profits are rolled back to boost sales and productivity. Some analysts also feel that the worst is over for Infy. But we need to wait and watch before going gung-ho.

With additional input from agencies
Image courtesy: Indiatimes