OVUM. Samad Masood
Yet another stunning set of results from Infosys, which has once again accelerated its growth while maintaining a market-leading margin. Once again growth has been helped by Infosys' ability to raise its prices (between 3% to 4%) on new deals and renewals, partly through sales of additional value-added services. Margins were also boosted (by around 80 basis points) by an increase in revenues from software products, such as the Finacle banking package. Software products now account for 4% of business. Price rises and product sales help keep profitability from sliding too fast in the face of rising labour costs and Rupee depreciation. In particular, labour retention is becoming a bigger challenge for Infosys, and attrition was up to 13.5% from 10.8% last year.
Having only signed its first $100 million deal last year, Infosys now says it has five or six $100 million deals in its pipeline. This is proof of the confidence that clients now have in the leading Indian players, and that in application services in particular, they are credible alternatives to western vendors.
But Infosys has big ambitions beyond application services, which today account for more than 70% of its business. Its BPO division has grown by 80% to $40 million in the quarter, with 40% of this revenue coming from Europe. Infrastructure services is also a rapidly growing, albeit small part (5%) of revenue, growing on average at 65% over the past few years. Infosys is also increasingly leveraging its consulting capability in order to win larger IT transformational deals.
Of course, Infosys' consulting, BPO and infrastructure management operations are still miniscule in comparison with western competitors such as Accenture, IBM, and EDS. But with growth at these levels, it won't be long before the company is a serious contender outside of application services.