A bet on Infosys, once a market favourite, now a forlorn, is a bet on Vishal Sikka, on the belief that he will turn the ship around at Infy. By all indications, Sikka appears to be doing just that. Since joining in August last year, he has been able to attract top talent from his previous stint at SAP. So far, seven SAP executives, of whom five are SVPs, have joined Sikka in his quest to rejuvenate Infosys. His most high profile 'acquisition' till date is perhaps that of Gordon Muehl, the chief technology officer for security at SAP.
Profitability. Infosys' profitability was once a legend. Its consistent high-margin track-record was one no competitor could beat. Margins peaked at 38.72 per cent in FY10. Ever since, it has been on a downhill slide. Margins hit a low of 32 per cent in FY14. With Sikka on the scene, the decline appears to be contained.
Outlook. The company has maintained its revenue guidance of 7-9 per cent for the full year. With the US showing signs of recovery, the banking sector there is set to come out of a period of stagnancy seen last year. Sikka is also big on acquisitions. After years of zero acquisitions, expect buyouts in the future. Infosys has a war chest ₹34,870 crore to dip into.
Valuations. Infy trades at 20.5 times earnings. More than the earnings multiple, what matters in the case of Infy is the direction that Sikka wants to take the company in - away from the traditional Indian software company business model that has long worked as a low-cost maintenance provider to one that focuses on innovation and automation. If Sikka manages to do that, Infy will be a different entity than what it is today. Buy.