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Infosys Technologies (INFY.BO)
Alert: Call with CEO Designate – Key Takeaways
Call with management — We had a call with the CEO Designate (currently COO and
Member of Board) Mr. S D Shibulal. Key highlights are presented below.
Understanding the 4Q weakness — Management attributed the softness to: (1) Usual
seasonality; (2) 1H being strong with clients actively spending their budgets; (3) Some
delays in decision making. There was no client specific issue; however, with 600+
clients, their behavior does impact the company. 4Q volume growth for Infosys was
below peers; although given seasonal weakness, growth was impacted for everyone.
Thoughts on pent up demand — Management does not believe that there was pent
up demand last year as clients always reprioritize based on the economic environment.
In FY10, though the budgets were closed, customers did not spend due to the
uncertain outlook; however, once that improved in FY11, spends happened.
Does lower margin imply higher growth? — Company does not think so. It believes
that this industry is closed and the fortunes are dictated by 4-5 players. If one player
drops prices, others could likely follow – taking profitability down for the sector. Though
the company has given margin decline guidance for FY12, its aspiration to grow above
industry average and to be ahead in terms of profitability is unchanged.
Pricing expected to move up — (1) Renegotiations are happening at above company
average rates; (2) There are COLA increases in some cases; (3) Increase in IP led
revenues is helping; (4) New contracts are coming in at or above company average.
Our concern, however, is whether this is sufficient to mitigate wage inflation pressure.
Priorities over the medium-term — The priorities can be broadly clubbed into three
categories. First, to continue to strengthen the strategic relationship with clients through
continued investments. Second, to increase relevance to clients with appropriate
offerings – e.g. company has launched new solutions in the areas of cloud computing,
enterprise mobility & sustainability, and expects them to be engines of future growth.
Lastly, to continue to become more global in nature as the clients expects Infosys to
service them wherever they are.
Maintain Neutral — Pipeline currently is the same yoy, management suggested that
there was euphoria around decision making last year which has now normalized.
Expectations have come off post disappointment in 4Q; however, at ~20-21x FY12E,
we believe that upsides are limited.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Infosys Technologies (INFY.BO)
Alert: Call with CEO Designate – Key Takeaways
Call with management — We had a call with the CEO Designate (currently COO and
Member of Board) Mr. S D Shibulal. Key highlights are presented below.
Understanding the 4Q weakness — Management attributed the softness to: (1) Usual
seasonality; (2) 1H being strong with clients actively spending their budgets; (3) Some
delays in decision making. There was no client specific issue; however, with 600+
clients, their behavior does impact the company. 4Q volume growth for Infosys was
below peers; although given seasonal weakness, growth was impacted for everyone.
Thoughts on pent up demand — Management does not believe that there was pent
up demand last year as clients always reprioritize based on the economic environment.
In FY10, though the budgets were closed, customers did not spend due to the
uncertain outlook; however, once that improved in FY11, spends happened.
Does lower margin imply higher growth? — Company does not think so. It believes
that this industry is closed and the fortunes are dictated by 4-5 players. If one player
drops prices, others could likely follow – taking profitability down for the sector. Though
the company has given margin decline guidance for FY12, its aspiration to grow above
industry average and to be ahead in terms of profitability is unchanged.
Pricing expected to move up — (1) Renegotiations are happening at above company
average rates; (2) There are COLA increases in some cases; (3) Increase in IP led
revenues is helping; (4) New contracts are coming in at or above company average.
Our concern, however, is whether this is sufficient to mitigate wage inflation pressure.
Priorities over the medium-term — The priorities can be broadly clubbed into three
categories. First, to continue to strengthen the strategic relationship with clients through
continued investments. Second, to increase relevance to clients with appropriate
offerings – e.g. company has launched new solutions in the areas of cloud computing,
enterprise mobility & sustainability, and expects them to be engines of future growth.
Lastly, to continue to become more global in nature as the clients expects Infosys to
service them wherever they are.
Maintain Neutral — Pipeline currently is the same yoy, management suggested that
there was euphoria around decision making last year which has now normalized.
Expectations have come off post disappointment in 4Q; however, at ~20-21x FY12E,
we believe that upsides are limited.
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