Infosys bets on digitisation, cloud growth to blunt Covid-19 impact in FY21

Infosys CEO Salil Parekh expects the growing demand for cloud solutions and virtualisation of products and services, as a consequence of accelerated remote working among clients, to blunt the impact of the Covid-19 crisis on the information technology (IT) services company’s topline this financial year.

"Our customers are looking at workforce transformation as remote working becomes normal. They are looking at cloud, virtualisation, automation while reducing costs through these methods. In our conversations with CEOs and other senior executives of our customers, we see that they want to consolidate their IT vendors," Parekh said, adding that these factors will enable the company to weather the impact of the prevailing crisis on the company’s revenue growth for financial year 2020-2021 (FY21).

The company announced its earnings for the fourth quarter of financial year 2019-2020 on Monday. The earnings were a tad under the 10-10.5% revenue growth guidance it had issued at the end of the third quarter. It had reported an 8% growth in the October-December quarter, beating analyst expectations. 

The company did not quantify the Covid-19 impact for the fourth quarter. 

Last week, Mumbai-based TCS, the country’s largest IT services exporter, said that the impact of Covid-19 could be similar to the recession that followed the global financial crisis. The company also said it expected demand to pick up by the third quarter of the current financial year. 

Infosys, like Wipro and Cognizant earlier, also deferred its earnings guidance for the current financial year.

"Because of the volatility, it is not appropriate to give any guidance. As and when we have that visibility, we will give guidance. We have only suspended and that can change," Parekh said ,adding that the company's cash reserves of $3.6 billion would provide it with enough cushion for any eventuality.

"We had established digital centres in the US and European region over the last few years. These centres will play an important role and will naturally lead the work in these digital domains providing us with better leverage," he said. 

Infosys derives almost 42% of its revenue from digital solutions and the domain has grown at 38% in the last year.

Analysts predict that customers across the spectrum will cut down on discretionary spends to conserve cash, while renegotiating existing contracts and delaying payments among other measures.

However, Parekh added that while there is a concern on some discretionary spends being under pressure, especially in the first quarter, the company had signed new deals since the second week of March as well as in April, when most countries saw the peak impact of the global lockdown.

“We will be rigorous on controlling cost and the running of operations and have deferred hikes and promotions. We see pharma, consumer staples, telco and high-tech segments having positive growth. The client needs are changing and they want to do whatever they are doing with increased efficiency. We are speaking more often with our clients to understand their challenges and adapt accordingly," Parekh said.

Infosys and other large IT services firms rely on the banking and financial services sector and retail for more than half of their revenue and these sectors have been under pressure for some time.

"In the financial sector, we will see an impact due to lower interest, banks will see more loan defaults, insurance firms will see lower premiums, card companies are seeing less activity. We are seeing manufacturing companies affected by both demand and supply side constraints; media and communication sector has seen the impact on account of less activity (film production and sports have stopped) as well as lower spending on advertisement. While telecom is growing, the 5G investments will slow down as potential enterprise customers of the technology might not be ready," COO UB Pravin Rao.

Infosys allayed any fears of security concerns arising out of its own employees working remotely, adding that the Cognizant ransomware attack last week was due to a lacuna in the product and not because of work-from-home. "We have invested in threat protection software and are constantly monitoring our networks. We are treading carefully on remote work," Rao added.

Like its peers, Infosys has enabled work-from-home for 93% of its employees. The company added that it will move its employees back to campuses only gradually and in a calibrated manner adding that it was exploring options of doing Covid-19 testing at its campuses. 

Infosys employs around 250,000 people globally.