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  1. Infosys sure of 25% operating margin despite investments

Infosys sure of 25% operating margin despite investments

India's second-largest IT services exporter, Infosys, remains confident of holding onto an operating profit margin of around 25% despite having to make significant investments in near future for growth.

By: | Updated: June 12, 2015 12:39 PM
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India’s second-largest IT services exporter, Infosys, remains confident of holding onto an operating profit margin of around 25% despite having to make significant investments in near future for growth. (Reuters)

India’s second-largest IT services exporter, Infosys, remains confident of holding onto an operating profit margin of around 25% despite having to make significant investments in near future for growth.

At the Morgan Stanley India Summit on Thursday, Infosys CFO Rajiv Bansal said, “We will make investments to accelerate our growth and will not shy away from it.” These investments will span across areas such as reskilling and retraining employees, building technology capabilities and acquisitions.

He said Infosys was looking at an operating profit margin of 24-26%. The IT major ended FY15 with a margin of 26%.

Infosys, once the bellwether for the Indian IT industry, also enjoyed the status of being the player with the highest margin. However, in the last three years, it has witnessed a steady decline. The IT major has set an aspirational target of 30% margin by 2020.

Infosys COO UB Pravin Rao, who was also part of the call, said there has been some improvement in the overall macroeconomic environment, but that has not resulted in any uptick in clients’ IT budgets. Rao said Infosys has taken measures over the last one year to increase the momentum in its core IT business, such as application development and maintenance (ADM) and infrastructure management services (IMS), to become more innovative.

In the ADM segment, Infosys has been making more investments in automation and technologies so as to withstand the pricing pressure without sacrificing margins. On the IMS segment, the Infosys COO admitted it was lagging behind competition but they were now accelerating its capabilities.

Infosys is also increasing its consulting capabilities sales pitch and has identified around 100 partners who will be given accounts to improve in its deal win rate. However, these measures are unlikely to witness any dramatic rise in growth rates. The company, which ended FY15 with growth of 5.6%, has given a guidance of 10-12% for FY16.

Bansal said, “Next fiscal we should see healthy growth and also target industry level.”

On its mergers & acquisitions (M&A) strategy, the Infosys COO said that a considerable part of its buyouts would be smaller, technology focused companies while they would also look at expanding into newer geographies or verticals where it has got limited presence.

Infosys has also seen a positive change on the attrition front, with fewer people leaving the company. Rao said the attrition rate has come down from 23% in Q1 of FY15 to around 13% in Q4 of the fiscal. Even the absolute number of employees leaving the company has halved in the the last one year. “Attrition is no longer a big issue for us and it is back to the industry average,” Rao said.

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