While FY22 was a banner year for the IT services major, the fourth quarter disappointed, as revenues and margins came below expectations.
As a result of strong demand for its services, software giant Infosys saw its annual growth rate jump to 19.7% in fiscal year 2021-22, the highest in a decade. It has also expanded faster than larger rival TCS for the third year in a row, raising doubts about whether Infosys has recovered its status as the IT bellwether.
While FY22 was a spectacular year, revenues and margins fell short of expectations in the fourth quarter.
Moneycontrol talked with Infosys CEO Salil Parekh on the causes that contributed to the company’s fourth-quarter earnings disappointment, the road ahead, and the issue surrounding the company’s Russian activities. Alshata Murthy, the daughter of Infosys founder NR Narayana Murthy, is married to Rishi Sunak, the British Chancellor of the Exchequer. Despite the firm’s stopping operations in Russia, her investment in Infosys has generated political concern in the UK.
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It’s been a banner year for Infosys as, in terms of your annual growth for FY22, it is the highest in a decade – 20.3%. Can you tell us what really helped you in the previous fiscal and are you on track at the same pace? In terms of the momentum, can you give us a sense of the demand going forward?
In the fiscal year 2022, we had tremendous growth. With a market share of 19.7%, we can plainly see that we are gaining market share in a very competitive business. Our clients’ focus on digital transformation, cloud work, and data work is the cause of this. Looking ahead, we’ve forecasted growth of 13–15 percent, which is a pretty good forecast for the year. We see our pipeline in good form, a strong demand environment, with 22,000 net new staff recruited in the fourth quarter. And that offers us a lot of hope for the future, among other things. Our significant agreements totaled $2.3 billion in the quarter and $9.5 billion for the year, giving us confidence.
Last year, you began at 12-13% and then you gradually took up the guidance to 19.5-20.5%. Can we expect a similar pattern of under promise and over delivery? Will you finally end the year at a similar percentage?
Based on what we’ve seen and the demand climate, we’ve issued advice. That’s what we did last year, and we’ll do it again this year. We were fortunate to be in a position to improve that forecast last year as we continued to see more and more traction as the year went by. As we begin the year, we are already at a high percentage, 13 to 15 percent, and we will see what the climate holds as the year develops and decide what to do based on that.
If I look at the fourth quarter, the revenue and margins came below what analysts were estimating, so some disappointment there, that you ended the year on a soft note. You mentioned some one-off factors in terms of clients but can you give us some details on what this reversal is about and what the impact will be?
Our year-over-year increase in Q4 was 20.6 percent, which was even higher than our full-year growth. Apart from that, we had a lot of traction in terms of big deals. There was a one-time incident involving a contract, which will be reversed in the future quarters. We don’t have any further information to provide at this time. However, with all of the volume increase and demand we expect in the future, as well as the 13-15 percent estimate, we are confident that our business will continue on a great path.
Another big spoiler was the attrition number, which zoomed to 27.7% while TCS’ is at over 17%. Do you see this getting worse before it starts moderating? What kind of challenges are you seeing on the supply side?
During the quarter, we saw a 5 point decrease in attrition compared to the prior quarter. As we go forward, we find that efforts such as increased employee involvement, more salary, more chances on various corporate projects, and career advancements have all begun to have an influence on workers and will continue to have an even bigger impact in the coming days. We see the attrition that has occurred as a result of all of these strategies being implemented, and we continue to profit.
On the Russia situation, you recently ceased operations there. Was this a major concern for your clients, considering you derive a majority of your business from North America and Europe. Secondly, the whole controversy around Akshata Murty and her shareholding in Infosys has created a storm of sorts in the UK. How much of a concern are both these factors?
We are in favour of the peace activities that are taking on there. We have contributed to humanitarian endeavours as a firm. We have less than 100 workers in Russia, and we have no ambitions to work for any Russian clients in the near future. We are working with international clients, and we have begun the move of that business from Russia to our Eastern European centres.
This is also a third year in a row when Infosys is growing faster than TCS, at least in terms of the revenue growth rate. Is Infy the new IT bellwether?
What matters the most is how our clients interact with us and how much market share we obtain. Our goal is to ensure that we accomplish things that are beneficial to our clients and that we be a part of their digital journey.
In reality, the cloud work that will take place over the next few years, as well as the digital work and automation that we are undertaking, provide us with an almost limitless possibilities on that front. We are increasing market share because of the skills we have developed, and we anticipate we will continue to grow. Today’s market is really exciting, and we want to be at the forefront of it.
We have given very strong guidance, will continue to gain market share: Infosys CEO Salil Parekh