Uptick seen in Infy’s cost saving-based deals: Kotak report

On operating margins, Infosys is expected to weather some of the headwinds, especially attrition-related costs and compensation increases.

The Bengaluru-based company’s core revenues (or non-digital revenue), which had grown at 3% year-on-year in constant currency in the second quarter, indicates focus on cost take-out is returning, according to the report. “The deal pipeline has a lot more cost takeout deals,” it added.

At a session hosted by Kotak recently, one of the key highlights was the management commentary about the increase in “cost take-out” deals in the deal pipeline of India’s second largest software services provider by revenue.
Jayesh Sanghrajka, deputy chief financial officer of Infosys, and Sandeep Mahindroo, head of investor relations, had participated in the session.

On the margins front, the brokerage sees some easing going forward due to lower attrition rates.

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“This (easing attrition-related costs) should provide some head room for margin management. The company has also pushed pricing lever and secured increases where feasible,” it said in a note written by analysts Kawaljeet Saluja and Sathishkumar S.

The company’s operating margin came in at 21.5% for the second quarter, down 210 basis points (bps) on year, but up 150 bps sequentially.

Last month, Infosys reported a 23.4% year on year jump in consolidated revenue for the quarter-ended September 30, to Rs 36,538 crore. Net profit rose 11% to Rs 6,021 crore.

Infosys’ large deal wins in the July-September was $2.7 billion, of which 54% were net new deals.

According to the report, mega deals are “more difficult” at an industry level in the current uncertain macroeconomic environment as clients may be reluctant to lock themselves into longer-term deals.