Infosys expects its margin guidance for FY21 to be in the range of 21-23% for FY21; It is bullish on digital revenue growth: UB Pravin Rao, COO

UB Pravin Rao, Chief Operating Officer (COO), Infosys, talks about deal wins worth $1.74 billion in Q1FY21, revenue and margin guidance for FY21, digital revenue, recovery expectations to hiring trend at Infosys among others during an interview with Swati Khandelwal, Zee Business. Edited Excerpts:

Q: Infosys has signed deals worth $1.74 billion in Q1FY21. How are you seeing the deal pipeline for the next 2 quarters?

A: We had a good track record on large deals in the last few quarters. In FY20 the total TCB of large deal wins was three times to the total TCB of large deal wins of FY18. So that is a significant one. In quarter one also we saw healthy large deals of $1.74 billion and early this quarter as I said we won the largest at Vanguard, which is the largest deal in the history of Infosys. At Vanguard we are actually transforming a legacy record-keeping system into a cloud-based platform. So, the net-net pipeline is extremely robust and we are very optimistic about the large deal pipeline. In fact, this in some sense demonstrates the confidence that our clients have in our ability to help them to navigate through these challenging times. 

Q: Unlike other companies, you have been successful in giving revenue guidance for FY21 of 0-2%. What were the reasons for your confidence in issuing guidance?

A: We had an excellent quarter in which the revenue grew by 1.5% year-on-year on the constant currency basis and even the environment was exemplary. I talked about the large deal wins and the healthy pipeline. We did well on the digital front as well and digital revenue grew 25.5% on a year-on-year basis and today it is 44.5% of our revenues. We have also enabled 99% of our people to work from home. So, we see less of supply-side issues. I think that the quarter one performance has given us confidence about the rest of the year. We had several conversations with our clients as well and they have appreciated of not only the operational resilience that we have demonstrated but also the relevance of our offerings and the way we are helping them in managing through these challenging times. Given all this, I think we were pretty comfortable in going back and giving guidance for the rest of the year. 

Q: You have given margin guidance of 21-23% for FY21. What factors make you comfortable with this and do you think that it has been due to your better cost management?

A: I think on the margin front our endeavour in the recent quarters has been to ensure a very stable margin regime. So towards that in the last few quarters, we learnt a very strategic cost management programme. We looked at all aspects of our business and started identifying and taking waste out and this includes embracing the adoption of automation in a very big way. This also includes strategic viewers like on site-off site ratio and reducing cost on sub cons. So, this is something that we started a few quarters back. Given the pandemic situation, we also looked at two additional areas in which we looked at our discretionary spend and started cutting the flow of those. We reduced our investment in professional services and investment in marketing. We also negotiated some discounts with some of the vendors. And given the COVID situation, we also got some saving sort of travel and visa costs. In addition, we also looked at cost avoidance basically, we froze hiring to the bare minimum and default compensation, promotions and so on. All this has actually resulted in good margin performance. In quarter one our margin improved to 22.7% which is 160 basis points (bps) higher then what we did in the fourth quarter of last year. We are also pretty comfortable with the margin guidance range of 21-23% that we have given.

Q: Digital revenue has 45% contribution to the total revenue. How much of the share of the digital revenue you are expecting by the end of FY21? 

A: We have done well on the digital front and today it is about 45% of our revenues. Digital contribution two year’s back was less than 25%. So we have grown significantly and this is a result of our investment in building capability in digital in the last couple of years, this includes acquisition, hiring niche skills, re-skilling our existing employees, stitching together partnerships with niche vendors in the ecosystem and also setting up innovations hubs in different parts of the world. In addition to this, we continued to invest in some of the IP that we have in terms of live enterprise, banking product Finacle and edge platforms. So, all this has translated into significant growth in revenue and continue to be relevant in the coming years as well and we are very confident that we will continue to see the same trajectory on digital going forward as well. However, we do not give guidance on digital per se we give only total guidance.

Q: Where do you see the recovery coming first, US, UK or Europe in the next two quarters? Similarly, if I will talk about the verticals then when do you see BFSI and Retail bouncing back? 

A: I think the situation is still very uncertain, still we continue to see the increasing number of cases in India. The US is also another area of concern and you are aware that it is a large market for most of us in the tech industry. We have also seen the emergence of second waves in Australia, Hong Kong and some parts of the world. So, net-net it is difficult to predict when things will come back to normal and one has to really wait for vaccine development and again with the vaccine, there is positive news but still we have to figure out there effectiveness and efficacy of this vaccine as well. The reality is, we have to learn to live with this pandemic for quite some time. So in the short term, we will continue to see some challenges to the demand but in the medium to long term we expect the demand to come back pretty strong. In fact, I believe that the IT spend will probably come back much stronger then what it was earlier because the clients will start looking at investing in technology to build a facility in the systems and their supply chains to deal with the pandemic. It is difficult to figure out where the recovery will come from or when but in the medium to long term we are pretty optimist that IT spend will come in a strong way. 

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Q: How has been the on-site hiring for Infosys? More importantly, a large portion of your workforce is working from home, IT sector was the first sector to go and it is the easiest perhaps for the purpose, so do you feel that going forward you will keep that strategy alive because that will help you to save a lot of costs? What percentage of your workforce is right now working from home?

A: On the hiring front in terms of fresher hiring, we have already in India hired made more than 20,000 people and will start onboarding towards the end of the quarter. Normally, we do in two-three quarters and will continue to do the same thing. In terms of lateral hiring, we will continue to hire based on-demand only. In fact, in quarter one across Infosys Group companies even though in some sense there was a freeze but we did the hiring of about 5,000 laterals. And, we expect that to continue both in India and the US as well. On the work from home situation again things will continue to evolve. The only thing that is certain in this new normal is that there will always be an element of work from home. However, it is difficult to predict what percentage it could be but it will depend on the nature of the project and individual comfort. In fact, the technical aspect of enabling work from home is relatively easy but what is challenging is that how do you engage with the employees in a virtual world, how do you imbibe your culture and values particularly for new joiners and how do you be social capital. So there is much more to be learnt for the work from home situation. I think from our perspective, we are looking at creating a hybrid model where the people have the flexibility to work from office or work from home. We are also focusing on making sure that we provide a very safe and healthy environment for the employees and continue to invest in building capabilities to be relevant to our clients and help them in providing business continuity.