What Murthy is doing to get Infosys back on track
Infosys shares jumped on Friday after India's second biggest outsourcer beat estimates by posting higher revenues and retaining its full year sales guidance. What surprised analysts, however, was the magnitude of gains. Infosys surged as much as 15 per cent, it's biggest in almost three months.
(Read: Infosys beats Q1 estimates)
The answer, according to many analysts, lay not in the numbers, but in NR Narayana Murthy, the iconic co-founder of Infosys, who returned from retirement to take charge of the struggling company in June.
"There is some NRN factor to the stock reaction as well even though these numbers are not a result of actions he would have taken in such a short time," Bhavin Shah of IDFC Securities told NDTV.
NDTV's Prashant Nair spoke to the Infosys' top management to find out what Mr Murthy has been telling them over the last month and a half.
Rajiv Bansal, chief financial officer at Infosys, said Mr Murthy is focused on growth, on margins, on the challenges the company and the IT industry are facing. (Watch: Infosys CFO on Narayana Murthy)
S.D Shibulal, chief executive of Infosys, said Mr Murthy has always focused on superior financial performance, but one thing that is most important for him is high quality growth with margins and that has been the discussion over the last few weeks. (Watch: What CEO Shibulal has to say on Mr Murthy's return)
Infosys is considering energising the sales force and driving efficiency within the organistion to raise margins.
Mr Bansal outlined other steps being considered.
"Margins will come when you cut the flab. There's a lot of scope to do that. Infosys is a large organisation," he said.
These words would be music to many analysts, some of whom have seen better days at Infosys, when the IT major's operating margins exceeded 30 per cent. Infosys reported an operating margin of 23.5 per cent in the June quarter.
Besides margins, Mr Murthy is also concentrating on rejuvenating Infosys' IT services to return to the path of growth, the management said.
"One of the directions from Mr Murthy is to focus more on bread and butter services such as IT services. That is a non-discretionary spend. 61-64 per cent of any company's IT spend would be on IT services," Chandrashekar Kakal, global head of business (IT services) at Infosys told NDTV. (Also read: Infosys to go after 'bread and butter' outsourcing deals)
That's exactly what many analysts want Infosys to do. Infosys has been growing much slower than the industry average because of its focus to grab a large share of the consulting pie, which yields bigger margins, but is discretionary and hence unable to grow faster.
"If they have deviated from their Infosys 3.0 strategy to focus on more mundane work at a lower price to bump up volume, that would be a good strategy and you can expect that kind of pragmatism from Murthy," Phani Sekhar of Angel Broking told Reuters.
Infosys might be quarters away from a rebound in growth and margins, but the one thing Mr Murthy seems to have done quickly is to win the confidence of employees.
"The first thing he looked at was employee morale...he gave wage hikes to all the employees... it has brought a lot of confidence in them," Mr Bansal said.
The salary hike announced in June may dent Infosys margins by 300 basis points in the next quarter, but it has certainly boosted confidence across the company.
He's one person, when he comes in he gives you lot of confidence to do a lot of things you believe in...that is one good thing. Today if I look at where we stand, we are far more confident and enthusiastic about our future. We are very well placed, Mr Bansal concluded.