NEW YORK (TheStreet) -- Indian software giant Infosys (INFY - Get Report) has underperformed the market in the last six months, but the company's latest results have given it a shot in the arm. Since releasing its first-quarter numbers on July 21, Infosys shares have appreciated more than 7%. The stock's resurgence is a result of a 10.9% year-over-year growth in Infosys' revenue last quarter, which helped the company beat analysts' estimates.
An Upgraded Outlook Is a Positive Sign
What's even more impressive is the fact that Infosys upgraded its full-year outlook. The company now expects to record revenue growth of 7.2%-to-9.2% this year as compared to the prior estimate of 6.2%-to-8.2%. This indicates that Infosys is carrying strong momentum, which will help the company sustain its recent run on the stock market.
In the first quarter, Infosys struck deals with 79 new clients. Of these, six large deals amounted to a total contract value of $688 million. As a result of these new deals, Infosys' business volume growth in the previous quarter was 5.4%, the highest in 19 quarters.
Improving Efficiency Will Be a Catalyst
Infosys is focused on addressing the highly competitive pricing environment in the software industry by implementing automation and improvements in productivity. Employee attrition is a big issue in the software industry because of commoditized employee benefits and standardized job profiles. Infosys is trying to resolve this by rolling out employee engagement initiatives.
The company is focusing on enhancing collaboration with employees and simplifying internal processes in order to retain talent. Driven by such initiatives, Infosys' utilization rate (excluding trainees) improved by 160 basis points to 80.2% in the previous quarter. Additionally, the quarterly annualized attrition for Infosys was at 14.2%, down from 23.4% in the year-ago period. The employee turnover decline should ideally lead to lower costs and improved productivity.
The Way Ahead
Infosys plans to achieve $20 billion in revenue by 2020, up from $8.7 billion currently. Additionally, it plans to improve employee productivity by more than 50% during the same period. The company also aims to improve its profit margin from 26% to 30%. Meanwhile, as a short-term goal, Infosys aims to outperform the industry's growth by 2017.
That's a tall order, but Vishal Sikka, CEO of Infosys, believes that with the initiatives that management has undertaken recently, this kind of volume growth is both possible and sustainable. Acquisitions have helped. Infosys is investing in small firms and taking their technologies to its established client base. These investments have helped Infosys better cross-sell its existing service offerings along with the new technology.
For example, so far this year, Infosys has invested $320 million in buying automation technology provider Panaya and digital commerce firm Skava. Using the technological support from these two firms, Infosys managed to crack deals with 29 clients last quarter. The number of projects in next-generation technology areas, such as open-source and artificial intelligence, has also gone up from 200 in March to 400 at present, indicating that the company is spending its money wisely.