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Infosys Technologies Neutral
INFY.BO, INFO IN
Still a few wrinkles to iron out; some are new and
some are old; reiterate Neutral
Infosys still has a few wrinkles to iron out, in our view. Some of these are
historic, while a few have arisen in the context of the emerging
competitive paradigm thanks to the renewed aggression of peers such as
TCS (OW) and Cognizant (covered by our US analyst Tien-Tsin Huang, OW).
In this report, we articulate some of them.
• Missing on the growth of high-potential horizontals: Infosys’ traction in
several high-potential emerging service lines, such as infra management,
BPO and testing services, is not keeping up with peers. We concede that the
company has done well in consulting and enterprise solutions, in which it
remains the clear leader, but believe that it will take much more broad-based
growth to move the needle on a revenue base as large as Infosys’.
• Pricing premium has ebbed since the downturn: In well established
verticals such as BFSI and telecom, the room to have preferential pricing is
limited. This puts the onus of revenue growth on volumes in the future – in
this area, Infosys has lagged behind peers such as TCS, in both good and
tough times.
• The goal of senior executive empowerment is laudable, but multiple
responsibilities for business heads might be causing under-performance
in some areas: Our finding is that at least one of the responsibility areas in
the portfolio has under-performed peers, and multiple responsibilities might
have something to do with this. For example, retail vertical has performed
in line with peers, but infra management, which is managed by the same
person, has significantly underperformed.
• Less effective in multi-vendor situations and lack of willingness to
expand geographical footprint: Most of the larger clients are increasingly
working with multiple vendors. Our channel checks suggest that, generally,
Infosys’ peers have increased market share in multi-vendor deals. Also,
Infosys has been reluctant to enhance its global footprint on par with peers.
China is an exception, but a presence here cannibalizes India-based delivery
(leading to the question of whether at this stage the China strategy is more a
substitute or an enhancement).
• We recognize that none of the above reasons are significant in isolation, but
we think they add up to a noticeable impact. Following our upgrade of
Wipro to OW on Feb. 21, and our long-standing OW on TCS, our
preferred stocks in the Indian IT sector are TCS (OW) and Wipro
(OW). We reiterate our Neutral rating on Infosys.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Infosys Technologies Neutral
INFY.BO, INFO IN
Still a few wrinkles to iron out; some are new and
some are old; reiterate Neutral
Infosys still has a few wrinkles to iron out, in our view. Some of these are
historic, while a few have arisen in the context of the emerging
competitive paradigm thanks to the renewed aggression of peers such as
TCS (OW) and Cognizant (covered by our US analyst Tien-Tsin Huang, OW).
In this report, we articulate some of them.
• Missing on the growth of high-potential horizontals: Infosys’ traction in
several high-potential emerging service lines, such as infra management,
BPO and testing services, is not keeping up with peers. We concede that the
company has done well in consulting and enterprise solutions, in which it
remains the clear leader, but believe that it will take much more broad-based
growth to move the needle on a revenue base as large as Infosys’.
• Pricing premium has ebbed since the downturn: In well established
verticals such as BFSI and telecom, the room to have preferential pricing is
limited. This puts the onus of revenue growth on volumes in the future – in
this area, Infosys has lagged behind peers such as TCS, in both good and
tough times.
• The goal of senior executive empowerment is laudable, but multiple
responsibilities for business heads might be causing under-performance
in some areas: Our finding is that at least one of the responsibility areas in
the portfolio has under-performed peers, and multiple responsibilities might
have something to do with this. For example, retail vertical has performed
in line with peers, but infra management, which is managed by the same
person, has significantly underperformed.
• Less effective in multi-vendor situations and lack of willingness to
expand geographical footprint: Most of the larger clients are increasingly
working with multiple vendors. Our channel checks suggest that, generally,
Infosys’ peers have increased market share in multi-vendor deals. Also,
Infosys has been reluctant to enhance its global footprint on par with peers.
China is an exception, but a presence here cannibalizes India-based delivery
(leading to the question of whether at this stage the China strategy is more a
substitute or an enhancement).
• We recognize that none of the above reasons are significant in isolation, but
we think they add up to a noticeable impact. Following our upgrade of
Wipro to OW on Feb. 21, and our long-standing OW on TCS, our
preferred stocks in the Indian IT sector are TCS (OW) and Wipro
(OW). We reiterate our Neutral rating on Infosys.
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