Infosys Declares Local Service Delivery Is Great – For Customers And Avoiding Regulatory Hassles

Infosys has reported a strong second quarter, a fat order book and a newfound admiration for delivering services wherever its clients do business.

The company yesterday revealed that for the quarter to September 30th it won US$3.31 billion of revenue, up 3.2 percent year-on-year. Operating profit hit $840 million, a 20 percent jump year-on-year. Both exceeded pre-COVID numbers: in Q2 2019 Infosys revenue grew 9.9 percent year-on-year to reach $3.21bn and delivered operating profit of $696m, up half a percent year-on-year.

The company won $3.15bn in deals valued at $50m or more, said its pipeline is strong and advised that even the retail sector is starting to spark up as a source of work.

CEO and managing director Salil Parekh attributed some of that success to Infosys’ newfound belief that local delivery is a splendid idea.

“We believe a localization approach is a significant market differentiator and will help us better navigate regulatory changes,” he said on the company’s earnings call, adding: “The sustained localization investments will ensure that we are able to continue servicing our clients across markets with a combination of local and global talent.”

Chief operating officer Pravin Rao said the localization focus has also helped Infosys to cope with the USA’s new regulations that make it harder to bring in workers on H-1B visas, saying “our dedicated focus over the past three years on the local American workforce, and our technology and innovation hubs across the U.S. gives us the ability to navigate across this new regulatory terrain.”

Ironically, Parekh said 99 percent of the company’s staff continue to work from home, rather makes the nation from which they do so a moot point.

Also on the call, COO Nilanjan Roy revealed a previously-secret target of $150m in cost reductions, said Infosys beat it handily and intends to achieve the same target again this financial year.

One cost that will rise, however, is wages: all staff will receive 100 percent of their “variable pay” while those not eligible for such awards will receive a one-off special incentive payment.

Parekh predicted continued good growth for the rest of the financial year, but asked investors to remember that Q4 is historically flat for Infosys.

I do expect the pace of modernization of legacy to continue much more aggressively than what we have seen in the past

The CEO added that Infosys sees its customers demand digital transformation, usually including a modernisation of legacy systems.

“I think, given the nature of the pandemic and how clients are reacting to it, you will see a lot more of spend on technology and clients also realize that for them to implement and take advantage of technology, their legacy has to be modern,” he said

“It has to be agile. Otherwise, it's very tough to get the benefit and even to drive any innovations in their own organization. So at least I do expect the pace of modernization of legacy to continue much more aggressively than what we have seen in the past.”

Overall, execs were very pleased with the quarter, but also cautious about the future. Parekh said there’s every chance that FY 21 performance to date will continue but warned that further waves of COVID-19 would mean a change in plans and forecasts.

But the company was still optimistic, not least because the $1.5bn deal it signed with US investment firm Vanguard in July 2020 made hardly any balance sheet impact in this quarter. ®