Infosys bets on new services to push sales to $20 bln by 2020

Posted Apr 24, 2015 by Reuters at Yahoo Finance. See original article here.

By Aman Shah and Devidutta Tripathy

MUMBAI (Reuters) – Infosys Ltd (INFY.NS), India’s second-largest software services exporter, on Friday posted quarterly net profit that lagged most analyst expectations, dampening hopes of a quick turnaround after top management changes.

Bengaluru-based Infosys, once seen as the bellwether of India’s $150 billion IT services industry, has in recent years struggled to innovate and retain market share due to a staff exodus that also impacted its ability to win lucrative deals.

Infosys, however, said it was on track to revive growth and expected its revenue to rise to $20 billion by 2020 up from $8.7 billion now, as it focuses on acquisitions and wins more new technology services.

Under Chief Executive Vishal Sikka, brought in last year to chart a new strategy, Infosys has been making bets on automation and other high-margin services like artificial intelligence to regain some ground lost to rivals including sector leader Tata Consultancy Services Ltd (TCS.NS).

“It’s a long-drawn initiative … it’s not going to come in immediately, said Sarabjit Kour Nangra, vice president of IT research at Angel Broking. “Infosys (stock) has to be bought for the long-term and not for the next one or two years.”

Infosys, which provides IT services to clients like Apple Inc (AAPL.O), Volkswagen AG (VOWG_p.DE) and Wal-Mart Stores Inc (WMT.N), said fourth-quarter net profit rose to 30.97 billion rupees, from 29.92 billion rupees a year earlier.

Analysts, on average, were expecting it to make 31.86 billion rupees, according to Thomson Reuters data.

For the year ending March 2016, Infosys expects its dollar revenue, two-thirds of which comes from clients in the United States and Europe, to post growth of 10 percent to 12 percent, up from 7.1 percent growth in the last fiscal year.

Infosys shares in India ended nearly 6 percent lower after the earnings release, and the U.S. shares (INFY.N) were trading down 7.4 percent at 1537 GMT.

Pricing for Infosys’ services continues to be under pressure due to rising “commoditization in the traditional outsourcing business”, Chief Operating Officer U.B. Pravin Rao said.

The outsourcing services provider is, therefore, looking to ramp up its productivity through automation and is looking for acquisitions to boost growth. Infosys’ cash and cash equivalents were at $5.2 billion at the end of March.

“The traditional model of IT services is dying but yet businesses continue to look for partners who can help them grow and innovate,” Sikka said. “We see an increasing role that automation and innovation will play in our existing portfolio.”

In a step towards that, Infosys said it had agreed to buy Kallidus Inc and an affiliate, which provide digital services such as mobile commerce for retail clients, for $120 million.

($1 = 63.5250 rupees)

(Writing by Sumeet Chatterjee; Editing by Christopher Cushing and Elaine Hardcastle)

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