Infosys results show rosy mood, but new wave is yet to come

“The quarter is a volatile animal,” Infosys CEO Vishal Sikka declared on Tuesday after his company reported better-thanexpected first quarter results for April-June, sending its shares surging by about 11.5%.

His modesty is understandable. Infosys is going through a profound turnaround after a chequered few years in which its own management challenges were compounded by a global economic crisis and tectonic shifts in technology and business models of the IT service industry.

Infosys is trying to do better the stuff that helped it grow big (cost-efficient coding and services) while trying to touch new frontiers (innovation and digital transformation using intellectual property) because the old tricks will not work anymore if it wants to stay a leader.

Q1 revenue for Infosys grew 7 per cent on the quarter – the highest in 15 quarters. Year-on-year growth was 12.4% in revenues. Revenue growth is expected to maintain the pace through the year. Not bad at all.

However, most of the topline growth came from volumes that grew 5.4% — the highest in 19 quarters. The company attributes this to an “organisational realignment” announced earlier this year. Large client additions helped keep the mood up.

The acquisition of 200-employee-strong Pranaya from Israel, which provides value-added services, gave new deals.

But the point to note is that the handsome numbers are by and large more from better management and probably, a bounce-back in the US economy, the biggest market for the export-oriented IT service industry.

To the extent that new initiatives centred around innovation have helped growth, you could say that the new wave is gaining ground. But the best may be yet to come, with a long way to go. That should explain Sikka’s down-toearth comment.