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COVID trends to propel company to double-digit growth: Infosys

At a recent analyst meet, Infosys management indicated that the company could get back to industry leading growth by next fiscal, and there is scope for margin expansion in medium-term despite continued investment in newer areas

Rukmini Rao | November 16, 2020 | Updated 23:40 IST
COVID trends to propel company to double-digit growth: Infosys

Bengaluru-headquartered IT major Infosys said that the pandemic-led accelerated trend for digital transformation could help the company return to near double-digit revenue growth it saw a couple of years ago. At a recently held analyst meet, the company highlighted five key areas of demand within digital - cloud adoption, IoT, data and analytics, cybersecurity and customer experience, and cloud - presenting the largest opportunity. With the recently launched 'Infosys Cobalt', the first cloud brand, Infosys plans to tap into this massive market opportunity in the migration and maintenance space. 'Infosys Cobalt' currently has 35,000 associates working in the space and over 200 solutions which speed up cloud implementations while reducing risks.

ALSO READ: Infosys to roll out salary hikes, promotions from Jan 1; give 100% variable pay

According to analyst reports, the company's management is looking to make the company more profitable. With an estimated $150 million cost savings factored in for the current year, Infosys has also indicated a few cost measures, such as optimising onsite-offshore mix, automation, subcontracting, pyramid and increasing the digital value addition to further drive margin improvement in the medium-term. While eventually the company is looking at a third of its employees working remotely, implementation of hybrid model (work from office and work from home) beyond the existing circumstances, would also be margin accretive.

Following the meet, most analyst firms maintained a buy target for the stock and an upward revision of target price. Nirmal Bang Institutional Securities in its note said that with digital at 47 per cent of revenue in Q2FY21, Infosys has been able to move the needle materially since the new CEO joined (was at approximately 12 per cent then).

ALSO READ: Infosys ups its guidance for FY21; declares one-time incentive for staff

ICICI Securities on the other hand said that that management has executed well, leading to healthy growth in revenues and narrowing of margin gap with Tata Consultancy Service (TCS).

However, Nomura said that the Infosys in the first half of FY21 saw EBIT margins benefit from cost deferrals such as wage hikes, promotions and low headcount addition, and cost reductions due to low travel and visa costs, reduced facility expenses and cutbacks on brand building expenses. "We expect FY21F/22F EBIT margins to trend down as some cost benefits reverse. Infosys announced wage hikes effective January 1, but the magnitude of wage hikes could be lower in our view," the note said.

In October, Infosys revised its full year revenue guidance to 2-3 per cent from the earlier 0-2 per cent range. The company also revised its operating margin outlook for the year to 23-24 per cent from the earlier range of 21-23 per cent.

ALSO READ: Infosys Q2 results: Profit rises 20.5% to Rs 4,845 crore, raises FY21 revenue guidance

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