July 14, 2017 9:06 pm JST

Digital offerings power Infosys's quarterly earnings

MUMBAI (NewsRise) - Infosys is set to power ahead with its digital push as India's second-largest software exporter disclosed its revenue from new Internet-based technologies for the first time since it started the drive more than two years ago.

Infosys and its rivals have been undergoing a transformation as the traditional outsourcing model came under assault from advances in automation and cloud computing. So far, Indian information technology companies have specialized in developing software applications and maintaining infrastructure for clients, using the large number of Indian engineers.

While announcing the company's first-quarter results on Friday, Infosys disclosed the revenue it generates from high-growth digital services such as artificial intelligence, cloud computing and automation. Digital services contributed 8.3% to the company's $2.65 billion revenue in the quarter, while software products accounted for 1.6%.

Nearly half of the $2 billion additional revenue Infosys generated in the last two years has come from new services, Chief Executive Vishal Sikka told reporters in Infosys' sprawling campus in the southern Indian city of Bengaluru. Earlier in the day, Sikka arrived at the press conference venue in an indigenously developed self-driving golf-cart, which he said "is a test bed" that has been created to train thousands of engineers on autonomous technology.

"All the strategy levers that we have been working on -- automation, renewing our services, a strong focus on operational efficiency... all of these things are working," Sikka said.

Infosys also maintained its constant currency dollar revenue growth forecast for this fiscal year that began in April at 6.5% to 8.5%. It raised the dollar revenue growth outlook including currency fluctuations to 7.1% to 9.1%.

In the April-June quarter, Infosys's profit rose 1.4% to 34.83 billion rupees ($541 million), while revenue grew 1.8%. Analysts had expected the company to report a profit of 34.35 billion rupees.

Infosys's strong performance comes barely a day after larger rival Tata Consultancy Services reported a surprise 5.9% decline in first- quarter net profit. Tata Consultancy earns roughly 19% of its revenue from digital services.

The industry's digital push comes in the backdrop of declining spending on traditional outsourcing services that account for 85% of its revenue. At an investor conference last month, Infosys's operating chief U.B. Pravin Rao said clients are seeking up to 40% cost savings from traditional businesses, which they want to reinvest in new digital technologies.

Last month, the industry's main trade body, the National Association of Software and Services Companies said it expects the growth pace from software exports to slow down this year as spending shifts to new technologies. Nasscom expects revenue to grow 7% to 8% in the fiscal year that began in April, below last year's 8.6% pace.

Infosys itself is also looking to draw up a new goal to replace a much-talked-about target of achieving $20 billion in revenue by 2020, thanks to a slow pace of growth over the last two years.

Over the past one year, Infosys has also been grappling with internal problems stemming from a dissonance with the founders. The founders led by N.R. Narayana Murthy had alleged a drop in corporate governance standards at the company and raised hackles over the outsize pay hikes offered to Sikka and Rao. They also sought for better returns to shareholders.

According to media reports, the founders, who own a combined 13% stake in Infosys, are looking to exit the company. Murthy, the main founder of Infosys, denied any such move.

On Friday, Sikka brushed aside questions of the founders exiting, saying "whatever the founders do will always be in the interest of the company." Sikka has in the past alluded to the spat with founders as "very distracting."

Amidst the clamor for better shareholder returns, Infosys had in April earmarked $2 billion in cash to return to shareholders in this fiscal year, but said the manner in which it will be paid out will be decided by the board.

Shares of Infosys closed down 0.44% in Mumbai trading, while Tata Consultancy ended with a 1.85% decline. The benchmark S&P BSE Sensex lost 0.05%.

--Dhanya Ann Thoppil

Asia300

Infosys Ltd.

India

Market(Ticker): BOM(500209)
Sector:
Industry:
Technology Services
Information Technology Services
Market cap(USD): 32,591.75M
Shares: 2,296.96M
Asia300

Tata Consultancy Services Ltd.

India

Market(Ticker): BOM(532540)
Sector:
Industry:
Technology Services
Information Technology Services
Market cap(USD): 74,230.57M
Shares: 1,914.28M

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