Infosys Ltd likely to change its focus area

Edited by Vani Rao

Deciphering the new mission statement of Infosys’ growth

h1Infosys Ltd (NYSE:INFY and NSE:INFY) has been historically generating a majority of its revenue from the Application Development and Management (ADM) division, followed by the Consulting & Systems Integration (CSI), and the Products, Platforms & Solutions (PPS) divisions. In recent years, the ADM segment has been facingpressure in terms of volume and margin growth. As shown below, ADM’s contribution to the total revenue of Infosys reflects a downward slope since FY2011. This division is losing market share as a result of intense competition from rival companies in technology services. Hence, Infosys has been focusing on its CSI and PPS divisions.

Source: Infosys
Source: Infosys

As shown below, the CSI division’s contribution to the overall revenue has been stable over the past two years, accounting for an average of 31.2% share between FY2011 and FY2013. Infact, the contribution from the CSI division to the overall revenue grew to 33.4% in the first two quarters of FY2014, indicating an increased focus on this division.

Source: Infosys
Source: Infosys

The PPS division has not seen major traction until FY2013.Since FY2011,the PPS division accounted for approximately 5.5% share of the overall revenue on an average. The flagship product of the PPS divisionis ‘Finacle‘, a banking product that contributes 4% of the company’s overall revenue. On December 9, 2013,the company launched TradeEdge,an insight-driven sales platform based oncloud technology. TradeEdge was introduced in the Indian market three years ago. However, it was re-introduced as a part of the company’s marketing exercise. This is a strategic move of Infosys and is aimed at deriving a much higher margin andhelping the company to baglarger outsourcing projects.

The rest of the PPS portfolio, which includes an array of offerings branded under ‘Infosys Edge’, has failed to make an impact on the market and has been contributing roughly 1.5% of the company’s total revenue.

Source: Infosys
Source: Infosys

WSA believes that the declining growth in Infosys’ stable ADM division suggests a change in the focus area for the company or a lack of traction with its existing clients. The CSI division has witnessed a jump in its revenue share over the last couple of quarters; but historically, growth in the CSI division has been volatile. Moreover, Infosys is now increasing its focus on its PPS division and its recent announcements have shown its interest to grow this division to a level where it will contribute nearly one-third of its total revenue as compared to 5.4% currently. However, the timeframe for this achievement has not been set and it will be interesting to see how this division helps the company to recover its lost ground.

Source: Infosys
Source: Infosys

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