Getting the Code Right at Infosys

INFOSYS CEO & MD Salil Parekh doesn’t mince words. At a time when most IT CEOs have been downplaying risks confronting the industry from the threats of a looming global recession impacting key markets of the U.S. and Europe, Parekh is rather candid about the macro instability leaving its footprint in select business territories. “We do see pockets of weakness, for example, in the area of mortgages in financial services. We keep a close watch on the evolving macro environment in terms of the changes to the (deal) pipeline… on the overall deal discussions, we see a little bit where it is slowing in the decision-making,” Parekh said while addressing investors during the company’s Q1FY23 earnings call in July.

Notwithstanding the challenges that often emanate from a shaky macroeconomic scenario, the CEO is confident of delivering growth. The optimism stems from a suite of Cloud and digital capabilities that Infosys has developed, which the company believes offers a differentiated proposition in the market. In fact, the IT bellwether has raised its revenue growth guidance for FY23 from 13-15% to 14-16%.

“We continue to gain market share with our Cobalt (a suite of Cloud solutions and services for enterprises) Cloud capabilities and our differentiated digital value proposition... clients continue to place an immense amount of trust and confidence in Infosys to help accelerate their digital transformation agenda, both on efficiency and the growth dimension of their business,” Parekh had said. The company closed FY22 with an annual growth of 19.7% in constant currency terms, fastest in 11 years. Net profit increased to ₹21,235 crore on a revenue of ₹1,03,940 crore in FY22 — a three-year CAGR of 13% and 12.4%, respectively. Three-year CAGR on return on capital employed was 34.9%.

Digital revenues, which account for around 61% of the firm’s total revenues, crossed $10 billion on an annualised run-rate basis in FY22. The company bagged 94 deals with a TCV (total contract value) of over $50 million last fiscal, taking its large deal value to $9.5 billion. During the fiscal, it returned cash to shareholders in the form of dividends of $1.7 billion and share buyback of $1.5 billion.

Parekh put in place the ‘One Infosys’ strategy four years ago to drive the future trajectory of business. The strategy is built on four elements — scaling the digital business, emphasis on automation, expansive skilling of employees and the localisation play wherein the idea is to hire more of local talent in markets such as the U.S., Europe and Australia. “The overall approach we have put in place for One Infosys has been the foundation for our growth, profitability, and shareholder return,” Parekh tells Fortune India.

“Many large digital programmes need different capabilities from within the company, and ‘One Infosys’ allows us to bring it together for the benefit of the client,” Parekh said at the company’s 41st annual general meeting in June. Going forward, the strategy is to build on the approach and put a sharper focus on the Cloud business while continuing “the intensity in the rest of digital.”

Elaborating on the company’s broader digital gameplan, Parekh had said Infosys will focus more on enterprise technology. “There are new elements that are coming from large software companies, digital engineering services, and one of the fast-growing areas within our business and within the market, IoT, which is doing extremely well for us…”

The other ambition is to lay the foundation for what the company calls the next-generation seeding — things may become “more and more relevant in 2, 3, 4 or 5 years, so the seeding needs to start today. Under next-generation seeding, the company plans to develop capabilities around cutting-edge technologies such as Web 3 and advanced automation, besides widening its focus on sustainability. “There are companies which are digital natives, which are growing quite rapidly and how we can become more and more close partners with them… some of the new technology areas, for example, the metaverse or quantum or Web 3.0, and the blockchain area where we have very strong capabilities which we can work with our clients on. And then the area of sustainability….our clients are looking at sustainability and what they wish to do leveraging some of the experiences that we have,” Parekh said while elaborating on the firm’s next-generation seeding strategy.

IT firms received a big boost amid the pandemic as companies across segments embarked on digitisation to future-proof their businesses in an increasingly tech-savvy world. Infosys’ aggressive tech posture is hence understandable. In Q3FY21, the IT major bagged a deal from German automaker Daimler to steer its technology-driven IT infrastructure transformation. The deal, pegged at around $3.2 billion, is touted as the largest in Infosys’ history. The IT major also pocketed an estimated $1.5 billion deal from U.S.-based investment management company Vanguard to drive the digital transformation of their record-keeping services onto a Cloud-based platform. “We are building on our leadership in Cloud and digital,” Parekh said during the company’s Q4FY22 earnings call with analysts and investors.

But, though IT companies may have been one of the biggest beneficiaries of the pandemic, when Covid struck, things didn’t seem that easy. In fact, Infosys had initially suspended providing guidance on revenue growth and operating margin for FY21 due to the uncertainty. For the company, the first priority was to ensure a seamless transition to a work-from-home mechanism. “In the last 2-3 weeks of March, the impact of Covid was significant, but we had already activated our business continuity plans with an intense focus on employee safety and client service delivery,” Parekh had said while addressing the company’s Q4FY20 earnings call.

“The future of technology makes me optimistic,” says Parekh. As renewed challenges engulf the macroeconomic scenario presenting both headwinds and new opportunities for tech firms, it remains to be seen how Parekh steers the Bengaluru-headquartered IT giant’s growth momentum.