Narayana Murthy has provided more clarity on the recent management changes at Infosys Ltd. The board, in his view, believes that the current dual president structure is most optimum at to achieve operational efficiency and agility in execution. However, even this structure is flexible, contingent on the delivered performance in the coming quarters.
Infosys Ltd reported a decent quarter, with a modest revenue growth of 1.7% ($terms q/q), but a steep margin expansion of 150 bps q/q. Visibly, the cost-cutting plan of the company is showing results. The CFO reiterated his target of 25% Ebit margin in the medium term. We see upside to these targets.
As detailed in our earlier upgrade note, our OW thesis is hinged on five key reasons.
The company has adjusted its go-to-market strategy, refocusing on the ?bread-and-butter? ADM type of deals and has adopted a more aggressive strategy in the market. Importantly, client mining has been poor in the past few quarters, coinciding with the company?s overall underperformance. But with Narayana Murthy back at the helm, we believe the Infosys Ltd?s focus has been switched to client mining, which should drive a growth recovery accompanied by better margins.
HSBC
