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Summary

Indian IT services bellwether Infosys announced its 1Q16 financials on July 21. Given the strong revenue growth and deal pipeline reported on the back of its "Renew-New" strategy, the company looks well placed for one of the best years it has had in recent memory. The icing on the cake is the fact that Infosys has finally beaten archrival TCS with its growth figures for North America. Given its current pace, Infosys seems well set to regain its former glory.

Hawkeyed focus on customer needs, and driven leadership have paid off

For the quarter ended June 30, Infosys reported revenues of $2.25bn, deal volume growth of 5.4%, the addition of 79 new clients, and six large deals with a total contract value (TCV) of $688m. The 4.5% organic, sequential revenue growth (4.4% in constant currency) is the highest sequential growth posted by the company in the last 15 quarters. Year-on-year growth was pegged at 5.7% (10.9% in constant currency) and is well above the average expectations we had from the vendor. Strategic focus on large deals such as the likes of recent contract signings with Deutsche Bank and Allied Irish Bank, higher spending from its largest customer Bank of America (around $300m annually), and an internal rejig to better align its portfolio to customers' needs have begun to show results. This is supplemented with a significantly lower attrition rate (just over 14% compared to over 23% for 1Q15) and better utilization rates (up 160 basis points to 80.2%), and is further cemented by focused acquisitions such as the April 2015 acquisition of digital experience solution provider Kallidus (also known as Skava).

Infosys, under Vishal Sikka's "disruptive" leadership, has been able to grow business in key verticals such as financial services, retail, and manufacturing, as well as in important geographies like North America. Sikka's leadership style seems to have reignited the "fire in [Infosys's] belly" which had simmered down over the past years. It has been able to get closer to clients and employees while still retaining a focus on growth based on a combination of technology and customer-centricity. The vendor has set itself the ambitious target of reaching $20bn in revenues over the next five years (it earned $8.7bn in FY2015) through a mix of organic and acquisitive growth. However, to achieve this, Infosys needs to take a more integrated approach that brings together consulting, delivery, and operations into one cohesive transformation storyline, and the momentum of this quarter needs to be sustained consistently.

Appendix

Further reading

India IT Services Vendor Quarterly, 1Q15, IT0019-003455 (June 2015)

The Importance of Legacy Modernization in the Digital Transformation Journey, IT0019-003446 (May 2015)

Author

Hansa Iyengar, Analyst, IT Services

hansa.iyengar@ovum.com

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