Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Infosys's conference call on its new strategy viz Infosys 3.0 clearly articulates Infosys's motive to
move up the value chain as business solution provider (versus just technology solution provider)
while maintaining the leadership in profitability versus peers.
"Infosys 3.0 - Building Tomorrow's Enterprise"
Infosys has now articulated its seven themes centred around clients demands (current and
future) including i) Digital Consumer, ii) Emerging Markets, iii) Pervasive Computing, iv) New
Commerce, v) Smarter Organisation, vi) Sustainable Tomorrow and vii) Healthcare Economy
across its reorganised verticals and services.
As part of the re-organization, Infosys had earlier announced the reorganisation of verticals
into broadly four verticals including: i) Financial Services and Insurance (FSI) - headed by Mr
Ashok Vemuri; ii) Manufacturing (MFG) - headed by Mr BG Srinivas; iii) Energy, Utilities,
Communications and Services (ECS) - headed by Mr Prasad Thrikutam; and iv) Retail, CPG
and Life Sciences (RCL) - headed by Mr UB Pravin Rao. In addition, Infosys has also created
a new vertical namely Public Sector and Healthcare.
The new verticalisation of the organisation will be now applied across all geographies as
compared to North American geography earlier. Infosys has also consolidated its services
offerings into three key groups including transformation, innovation and operations.
Consulting, Package Implementation and System Integration will form part of
Transformational services, Products/Platforms/Solutions/Tools will form part of the Innovation
and rest of the services will form part of operations.
Infosys will soon announce the heads of reorganised services. Mr Subhash Dhar - earlier
heading Communication, Media and Entertainment and member of the executive council has
been named in charge of the Innovation practice
Infosys 3.0 - the need and likely changes
We believe that Infosys is clearly working towards becoming an alternative to not only Indian
outsourcing vendors but also to global consultants/system integrators, while leveraging global
delivery for consulting and system integration offerings. Infosys's 3.0 is likely to further ramp
up Infosys's organic scale versus peers in Consulting/Package Implementation (currently
contributing 25% of revenues).
We believe that these strategic changes are brought about with not only to move up the value
chain, but also due to increasing demand from clients. This may lead to change in delivery
methods with more contracts likely to be signed on fixed price and outcome based pricing or
driving more non-linearity. We also believe that Infosys has already tested these service
offerings/delivery models as it derives 11% of its revenues from such innovative non-linear
delivery models (including ~5% of revenues from banking product suite). Close to half of the
active clients (620 at the end of 4Q11) have started using these innovative methods of
delivery from Infosys. These indicates that average revenues from these initiatives excluding
banking product is around US$1mn per client, which we believe is a very strong start both in
terms of wide acceptance and average scale up per client
The primary go-to-market will continue to be through reorganised verticals across
geographies versus earlier model of verticalization just in North America.
Infosys will have dedicated R&D team in building services/solutions/products/tools across its
seven defined themes applicable to various industry verticals. We believe that currently
Infosys has +2000 employees working on platform/non-linear offerings besides +6200
employees for its banking product.
We believe Infosys may have to recruit more lateral staff including business consultants and
technology specialists, including those from local markets. It is also looking to ramp up the
technical staff in low-cost locations outside India. For instance, Infosys is building US$130mn
campus in Shanghai, China over coming years.
A key investor concern through this phase of investment would be the margin trajectory for
the company. Management has clarified that it will continue to pursue a balance between
growth, investments and margins and will not compromise margin leadership, though the
margin gap versus TCS has narrowed considerably. We believe that Infosys's FY12 margin
decline guidance of 300bp is factoring some of these investments, but we believe the pace of
the investments would be dictated by the revenue growth trajectory. Therefore we continue to
believe that Infosys's FY12 margin guidance is conservative.
Overall we believe that Infosys's increasing focus on Infosys 3.0 may lead to high margin
compression in FY12, however in medium to long term, we believe that these initiatives would
be revenue and margin accretive and could throw material positive surprises on EPS. We
continue to believe Infosys has higher headroom to manage margin pressure and investment
requirements relative to peers. However, we believe that in the near-term valuations would be
determined by quality of execution.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Infosys's conference call on its new strategy viz Infosys 3.0 clearly articulates Infosys's motive to
move up the value chain as business solution provider (versus just technology solution provider)
while maintaining the leadership in profitability versus peers.
"Infosys 3.0 - Building Tomorrow's Enterprise"
Infosys has now articulated its seven themes centred around clients demands (current and
future) including i) Digital Consumer, ii) Emerging Markets, iii) Pervasive Computing, iv) New
Commerce, v) Smarter Organisation, vi) Sustainable Tomorrow and vii) Healthcare Economy
across its reorganised verticals and services.
As part of the re-organization, Infosys had earlier announced the reorganisation of verticals
into broadly four verticals including: i) Financial Services and Insurance (FSI) - headed by Mr
Ashok Vemuri; ii) Manufacturing (MFG) - headed by Mr BG Srinivas; iii) Energy, Utilities,
Communications and Services (ECS) - headed by Mr Prasad Thrikutam; and iv) Retail, CPG
and Life Sciences (RCL) - headed by Mr UB Pravin Rao. In addition, Infosys has also created
a new vertical namely Public Sector and Healthcare.
The new verticalisation of the organisation will be now applied across all geographies as
compared to North American geography earlier. Infosys has also consolidated its services
offerings into three key groups including transformation, innovation and operations.
Consulting, Package Implementation and System Integration will form part of
Transformational services, Products/Platforms/Solutions/Tools will form part of the Innovation
and rest of the services will form part of operations.
Infosys will soon announce the heads of reorganised services. Mr Subhash Dhar - earlier
heading Communication, Media and Entertainment and member of the executive council has
been named in charge of the Innovation practice
Infosys 3.0 - the need and likely changes
We believe that Infosys is clearly working towards becoming an alternative to not only Indian
outsourcing vendors but also to global consultants/system integrators, while leveraging global
delivery for consulting and system integration offerings. Infosys's 3.0 is likely to further ramp
up Infosys's organic scale versus peers in Consulting/Package Implementation (currently
contributing 25% of revenues).
We believe that these strategic changes are brought about with not only to move up the value
chain, but also due to increasing demand from clients. This may lead to change in delivery
methods with more contracts likely to be signed on fixed price and outcome based pricing or
driving more non-linearity. We also believe that Infosys has already tested these service
offerings/delivery models as it derives 11% of its revenues from such innovative non-linear
delivery models (including ~5% of revenues from banking product suite). Close to half of the
active clients (620 at the end of 4Q11) have started using these innovative methods of
delivery from Infosys. These indicates that average revenues from these initiatives excluding
banking product is around US$1mn per client, which we believe is a very strong start both in
terms of wide acceptance and average scale up per client
The primary go-to-market will continue to be through reorganised verticals across
geographies versus earlier model of verticalization just in North America.
Infosys will have dedicated R&D team in building services/solutions/products/tools across its
seven defined themes applicable to various industry verticals. We believe that currently
Infosys has +2000 employees working on platform/non-linear offerings besides +6200
employees for its banking product.
We believe Infosys may have to recruit more lateral staff including business consultants and
technology specialists, including those from local markets. It is also looking to ramp up the
technical staff in low-cost locations outside India. For instance, Infosys is building US$130mn
campus in Shanghai, China over coming years.
A key investor concern through this phase of investment would be the margin trajectory for
the company. Management has clarified that it will continue to pursue a balance between
growth, investments and margins and will not compromise margin leadership, though the
margin gap versus TCS has narrowed considerably. We believe that Infosys's FY12 margin
decline guidance of 300bp is factoring some of these investments, but we believe the pace of
the investments would be dictated by the revenue growth trajectory. Therefore we continue to
believe that Infosys's FY12 margin guidance is conservative.
Overall we believe that Infosys's increasing focus on Infosys 3.0 may lead to high margin
compression in FY12, however in medium to long term, we believe that these initiatives would
be revenue and margin accretive and could throw material positive surprises on EPS. We
continue to believe Infosys has higher headroom to manage margin pressure and investment
requirements relative to peers. However, we believe that in the near-term valuations would be
determined by quality of execution.
No comments:
Post a Comment