Infosys to bank on large deals to get back in shape

Infosys, India’s second largest information technology (IT) services company, is now looking at significantly improving its win rates of large deals, apart from increasing its employee utilisation rates, as part of its growth execution strategy in the medium term.

The Bengaluru-based company, which showed strong growth in the quarter ended October, is now targeting large deals in the range of $1.5 -2 billion which would help it achieve industry growth rate level in financial year 2017, Chief Financial Officer (CFO) Ranganath Mavinakere said addressing the Axis Capital Conference in Mumbai on Monday. “This is our aspiration and we are on that trajectory,” he added.

With global clients seen reallocating their budgets in areas like cloud, social media and mobility as part of their digital drive, deal sizes getting awarded to outsourcing vendors are seen to be shrinking. For Infosys, the average size of large deals which used to be in the range of $500-550 million, has risen to $830 million in the second quarter of FY16.

“The large deals won component has significantly increased over the last couple of quarters,” said U B Pravin Rao, chief operating officer of Infosys, who was also part of the conference. “We continue to do well unlike in the past.”

Apart from large deals, Mavinakere said Infosys would also focus on improving employee utilisation to 85 per cent from 81 per cent at present. The company is also looking at mining its top accounts better and bringing in cost optimisation measures like reducing the expense of its onsite presence. “We need to make investments in winning these large deals so as to take away the pressure of quarterly shocks,” Mavinakere added.

Given the current momentum, Infosys, he said, is likely to achieve industry growth rate level only in FY17. For FY16, Infosys has given a revenue growth guidance of 10 to 12 per cent in constant currency terms, though according to Nasscom guidance the industry is expected to grow at 13-15 per cent. “We need to break out of the 10 per cent growth bracket,” the Infosys CFO said. He added that operating profit margins are expected to be in the range of 24 to 26 per cent, even though it could be under pressure in the near term owing to certain investments the company is making to win large deals.

According to Rao, while the company has done well in the second quarter of FY16, the October to December period is expected to be soft because of seasonality, including client furloughs and extended holidays. “We expect some momentum to be back in the fourth quarter, though, overall, the second half is going to be weaker than the first,” he said.

In terms of business verticals, Rao said certain segments like Energy & Utilities and Telecom are still going through a challenging phase, despite the company seeing good momentum in the financial services space.