"Pockets of weakness", but Infosys bullishly ups its outlook for the year as Cobalt cloud offering gains traction

Infosys missed its profit estimates yesterday, but upped its outlook for the year despite fears that global recessionary pressures might yet lead to a fall off in demand.

The services giant turned in a Q1 profit of Rs 5,360 crore ($689 million), up 3.17% on the comparable period’s Rs 5,195 crore, while revenue was up year-on-year by 23.6% to Rs 34,470 crore.

While there are “pockets of weakness”, CEO Salil Parekh confidently pointed to continued demand for Infosys services despite the wider macro-economic uncertainties around the world:

Clients continue to place an immense amount of trust and confidence in Infosys to help accelerate their digital transformation agenda, both on efficiency and the growth dimension of their business. The strong growth we have seen in the quarter lays a robust foundation for the year.

Pipeline demand for large deals is larger than it was 6 months ago, he said:

We've got two types of deals. One is deals which are on digital transformation or cloud, which are growth-orientated for clients, driving to what they want to do with their customers. Or in their supply chain, how they want to make an impact there.

The second is on cost. We have a very strong play on cost and efficiency through our automation work, through our Artificial Intelligence work, where we can really impact the cost base in the tech landscape of our clients.

So those are areas which we are already very active within this environment. Given our positioning, we feel good that those will start to come into play as and when the environment changes. But today, this is how we are seeing the demand situation.

He added:

Growth continues to remain broad-based across the segments, service lines and geographies.  Each of our business segments grew in double digits, with several of them growing at 25% or higher. In terms of geography, the US geography grew at 18.4%, and Europe grew at 33.2%. This indicates a healthy demand environment and is a reflection of how our industry-leading digital capabilities are relevant for our clients.

Other stats of note from the post-earnings analyst call:

• Digital revenues account for more than two-thirds (67%) of the overall total, up 37.5% year-on-year in constant currency.
• In Q1, the firm signed 19 deals with a large deal value of $1.69 billion.
• The number of $50 million clients increased by 10 to 69.
• The number of $100 million clients increased by 4 to 38.
• The quarter saw a net headcount increase of over 21,000 employees.

Cobalt

The firm’s Cobalt cloud offering - a set of 35,000 cloud assets and over 360 industry cloud solution blueprints - continues to appeal to customers, said Parekh:

We continued to gain market share with our Cobalt cloud capabilities and our differentiated digital value proposition, driving a significant pipeline of opportunities for us. For example, a premier online retailer in the US leveraged Infosys Cobalt to embark on a cloud-driven transformation journey to enhance the customer experience and improve the security posture. Another example is a European manufacturer who's reimagining their digital workplace and best-of-breed network security with IT infrastructure powered by Infosys Cobalt. There are examples like this all across the spectrum in different sectors that are driving Infosys Cobalt into the market.

The first quarter also saw the announcement of an acquisition of BASE Life Sciences, bringing in additional expertise in medical, digital marketing, clinical and regulatory areas.. Parekh explained

This is a business which is very high end in the life sciences area. When we launched our strategy a few weeks ago, just at the start of the quarter, we had shared also a new focus -- or expanded focus on Europe. And Denmark for us is a very strategic market. The whole Scandinavian market is a very strategic market for us. So that's the second area that it benefits us.

We also see clients are using the capabilities of BASE as a starting point. And then that leads to large technology transformation, digital transformation. That helps us overall in terms of scaling up that segment. That's a segment which we feel is a strong segment for the future and where we are underweight in percentage terms. So we want to enhance that with our deep existing capability.

My take

We are looking forward to this year with strength and optimism.

A confident CEO with data to back him up. Infosys revenue growth outstripped the likes of TCS and HCL in Q1. That said, such is the unstable nature of the macro-economic climate that all eyes will still be on the overall performance of the Indian services sector if recession fully kicks in across Europe and the US. But for now at least, Infosys bullish attitude is welcome.