"Flat world" is the corporate mantra of Infosys (NASDAQ:INFY). With the excellent results released this morning, the flawless growth continues. Valuation is more controversial, but Infosys' strategy is more sophisticated than just supplying cheap offshore labor.
First, the results. Revenue for the quarter grew to $821 million, up 47% from the same quarter in the prior year. Earnings per American depositary share increased to $0.39 from $0.26, up 50%. Other milestones: becoming the first Indian company in the Nasdaq-100 index, and deepening client relationships to the point where Infosys earns more than $70 million from eight clients (up from six in the previous quarter). Performance on the standard IT services metrics remains strong. Billable headcount increased 8% in the quarter, attrition is reasonable at 13.5%, and utilization of 67% is depressed by Infosys' world-leading commitment to training.
Behind the offshore-driven growth story, Infosys has been working on sharpening its strategy.
First, there is Finacle, a software product company owned and run by Infosys. It offers a "universal banking solution," which provides software for consumer and corporate banking, treasury, and wealth management. The Finacle product recently earned the top slot from technology analysts Forrester Research (NASDAQ:FORR) in their review of retail banking platforms. Segment results for Finacle are not in the quarterly releases, but the business now has just under 2,000 people dedicated to it.
Second, Infosys has been building up its own dedicated consulting firm, Infosys Consulting -- known as "ICI." Though it accounts for only 3.3% of Infosys' total revenues, this $100-million-a-year business grew 35% from the September quarter to December. And the business only started in April 2004. ICI aims to compete with the large IT consultants, such as Accenture (NYSE:ACN) and IBM (NYSE:IBM), on quality, but with project costs 30% lower. Savings come from applying Infosys' global delivery model, and from changing the typical project team structure to three consultants offshore for every two onshore -- curiously known as the "1-1-3" model. And, of course, consulting can create multiples of work for the downstream offshore units.
In summary, Infosys is the leader of the flat world, with a well-honed business model. It continues to invest in initiatives to keep the exceptional growth rolling. As the blue chip of its sector, its valuation is reasonable. Infosys has a similar trailing P/E ratio to the much smaller and still-developing ExlService Holdings (NASDAQ:EXLS).
Further Foolishness:
Accenture is an Inside Value recommendation.
Fool contributor John Finneran writes and advises on increasing the financial value of technology. He is currently ranked 27 out of 19,739 in CAPS and does not own any of the shares mentioned. The Fool has a disclosure policy.
