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India: Technology: IT Services
Equity Research
Assessing industry impact on the current debate over US visas
Infosys receives subpoena from US DC; US visa usage in focus
Infosys informed BSE that on May 23, 2011, it received a subpoena from a
Grand Jury in the US District Court (DC) for the Eastern District of Texas.
The subpoena requires Infy to provide documents and records related to its
sponsorships for and uses of B1 visas. Infy has stated that it intends to
comply with the subpoena and co-operate with the investigation. In our
view, this is a company-related but distinct event with the Palmer vs.
Infosys case currently on in the US.
Key takeaways of Senator Grassley’s letter and the DoS response
Senator Grassley had, in a letter to DoS and DHS (April 14, 2011),
questioned the “B-1 in lieu of H-1B” policy, stating that it may be misused
to evade the H-1B visa cap, referencing the Palmer vs. Infosys case. We
note the DoS response to Sen. Grassley (May 25, 2011): “...the Infosys
litigation you described appears to involve misrepresentation in
the visa application, rather than a misapplication of visa law.” DoS
also stated that it is working with the DHS to consider eliminating (or
amending) the “B-1 in lieu of H-1B” visa policy.
Curbs on B-1 could impact about 4,100 B-1s for top-4 companies.
If the “B-1 in lieu of H-1B” is altered by the US government, we think that
there may be near-term alterations to business practices with a greater
shift to onsite (currently 4,133 employees are on B1 from the top-4 firms in
our coverage). This could even be for routine business reasons like
preliminary discussions, requirements gathering etc. Over the longer term,
we believe that the IT industry may find it easier to accelerate their local
hiring strategy, which could be a more acceptable socio-political move.
Shift to higher onsite hires implies potential margin hit of 30-50 bp
As per our estimate, the top-four Indian firms in our coverage employ
68,149 employees in the US (33,945 – H1, 7,393 – L1 and 26,811 – local
employees). We believe that the margins for the industry may be impacted
by 30-50 bp in the medium term if they have to permanently increase the
number of onsite employees (through local hires or H-1B/L-1 visas). We
maintain our TPs, estimates, and ratings for our stocks, as it is difficult
to predict the legal outcome. Moreover, we think, factoring in a change in
legislation could be premature. We reiterate a strong revenue growth
(+24% for large-caps) and positive bias towards the sector
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India: Technology: IT Services
Equity Research
Assessing industry impact on the current debate over US visas
Infosys receives subpoena from US DC; US visa usage in focus
Infosys informed BSE that on May 23, 2011, it received a subpoena from a
Grand Jury in the US District Court (DC) for the Eastern District of Texas.
The subpoena requires Infy to provide documents and records related to its
sponsorships for and uses of B1 visas. Infy has stated that it intends to
comply with the subpoena and co-operate with the investigation. In our
view, this is a company-related but distinct event with the Palmer vs.
Infosys case currently on in the US.
Key takeaways of Senator Grassley’s letter and the DoS response
Senator Grassley had, in a letter to DoS and DHS (April 14, 2011),
questioned the “B-1 in lieu of H-1B” policy, stating that it may be misused
to evade the H-1B visa cap, referencing the Palmer vs. Infosys case. We
note the DoS response to Sen. Grassley (May 25, 2011): “...the Infosys
litigation you described appears to involve misrepresentation in
the visa application, rather than a misapplication of visa law.” DoS
also stated that it is working with the DHS to consider eliminating (or
amending) the “B-1 in lieu of H-1B” visa policy.
Curbs on B-1 could impact about 4,100 B-1s for top-4 companies.
If the “B-1 in lieu of H-1B” is altered by the US government, we think that
there may be near-term alterations to business practices with a greater
shift to onsite (currently 4,133 employees are on B1 from the top-4 firms in
our coverage). This could even be for routine business reasons like
preliminary discussions, requirements gathering etc. Over the longer term,
we believe that the IT industry may find it easier to accelerate their local
hiring strategy, which could be a more acceptable socio-political move.
Shift to higher onsite hires implies potential margin hit of 30-50 bp
As per our estimate, the top-four Indian firms in our coverage employ
68,149 employees in the US (33,945 – H1, 7,393 – L1 and 26,811 – local
employees). We believe that the margins for the industry may be impacted
by 30-50 bp in the medium term if they have to permanently increase the
number of onsite employees (through local hires or H-1B/L-1 visas). We
maintain our TPs, estimates, and ratings for our stocks, as it is difficult
to predict the legal outcome. Moreover, we think, factoring in a change in
legislation could be premature. We reiterate a strong revenue growth
(+24% for large-caps) and positive bias towards the sector
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