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Management meeting notes
Interaction with two Executive Council members confirmed our views on
changing times ahead for Infosys. Under Shibulal’s leadership, we expect
Infosys to drive a market share growth agenda. This could take some toll
on near-term margin performance even as volume upside from this new
found aggression remains a 2012/13 story. In the interim, delays in
project decisioning (primarily in financials sector), lower willingness of
clients to commit to bigger projects and a muted pricing scenario imply
that the earnings upsides which the street is hoping for will likely prove
elusive. Risk to earnings and valuation is on the downside. UPF stays.
Expect a more aggressive Infosys ahead
Infosys is readying itself for greater aggression in the market place. Lack of
agility and limited compromise on terms & conditions were the key internal
constraints in large deal bids at Infosys and these are being addressed. The
last few years had seen Infosys de-emphasise the traditional ADM business in
favour of more transformational (perceived higher value added) business. The
consequent lag in volume growth c.f. peers has forced Infosys to have a relook
at that strategy. Infosys is now opening up more to the traditional ADM
deals and will also likely show greater willingness to captive buy-outs, which
they have eschewed earlier due to internal margin thresholds. This change in
strategy has resulted in Infosys bidding for a higher number of large deals.
Slower decision making could impact retail vertical in 2QFY12
Infosys’ Retail, Consumer Products & Life sciences vertical Head Pravin Rao
seemed more optimistic on 2HFY12 growth rather than Sep-11 quarter. Retail
vertical (+15.8%QQ) was the key growth driver for Infosys in 1QFY12. A few
ERP programs in his vertical are ending in this quarter and Infosys has been
unable to sufficiently back-fill these. Infosys was hoping to close a few big
deals but the macro environment has delayed decision making at certain
clients both in US and Europe. Clients are also not committing to bigger bets
and are signing up for smaller deals, which is clouding the outlook somewhat.
Uncertainty is being seen more in the consumer product goods space than in
retail. Infosys has been able to push through inflation-linked rate hikes in
select accounts but new deals remain competitive and vendors are bidding
even under the MSA (master services agreement) rate in many instances.
BFSI remains challenged; hopes of telecom pick-up in 2HFY12
Per Infosys’ Business Operations Head C S Kakal, financial services (35% of
revenues) remains a tad soft. While there have been no large scale project
cancellations, deferred decision making and some anecdotal instances of
cancellations makes Infosys less sanguine on prospects in this vertical.
Elsewhere, Infosys has finally started seeing some activity in telecom vertical
and is hopeful of growth in 2HFY12. While the last leg of internal changes is
on, Kakal believes that the impact of re-organisation is largely behind and the
focus on volume growth is resulting in utilisation levels inching up a bit.
Pricing environment remains challenged and Infosys is trying to balance it
through tweaks in delivery (shared services, non-linearity, fixed price etc).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Management meeting notes
Interaction with two Executive Council members confirmed our views on
changing times ahead for Infosys. Under Shibulal’s leadership, we expect
Infosys to drive a market share growth agenda. This could take some toll
on near-term margin performance even as volume upside from this new
found aggression remains a 2012/13 story. In the interim, delays in
project decisioning (primarily in financials sector), lower willingness of
clients to commit to bigger projects and a muted pricing scenario imply
that the earnings upsides which the street is hoping for will likely prove
elusive. Risk to earnings and valuation is on the downside. UPF stays.
Expect a more aggressive Infosys ahead
Infosys is readying itself for greater aggression in the market place. Lack of
agility and limited compromise on terms & conditions were the key internal
constraints in large deal bids at Infosys and these are being addressed. The
last few years had seen Infosys de-emphasise the traditional ADM business in
favour of more transformational (perceived higher value added) business. The
consequent lag in volume growth c.f. peers has forced Infosys to have a relook
at that strategy. Infosys is now opening up more to the traditional ADM
deals and will also likely show greater willingness to captive buy-outs, which
they have eschewed earlier due to internal margin thresholds. This change in
strategy has resulted in Infosys bidding for a higher number of large deals.
Slower decision making could impact retail vertical in 2QFY12
Infosys’ Retail, Consumer Products & Life sciences vertical Head Pravin Rao
seemed more optimistic on 2HFY12 growth rather than Sep-11 quarter. Retail
vertical (+15.8%QQ) was the key growth driver for Infosys in 1QFY12. A few
ERP programs in his vertical are ending in this quarter and Infosys has been
unable to sufficiently back-fill these. Infosys was hoping to close a few big
deals but the macro environment has delayed decision making at certain
clients both in US and Europe. Clients are also not committing to bigger bets
and are signing up for smaller deals, which is clouding the outlook somewhat.
Uncertainty is being seen more in the consumer product goods space than in
retail. Infosys has been able to push through inflation-linked rate hikes in
select accounts but new deals remain competitive and vendors are bidding
even under the MSA (master services agreement) rate in many instances.
BFSI remains challenged; hopes of telecom pick-up in 2HFY12
Per Infosys’ Business Operations Head C S Kakal, financial services (35% of
revenues) remains a tad soft. While there have been no large scale project
cancellations, deferred decision making and some anecdotal instances of
cancellations makes Infosys less sanguine on prospects in this vertical.
Elsewhere, Infosys has finally started seeing some activity in telecom vertical
and is hopeful of growth in 2HFY12. While the last leg of internal changes is
on, Kakal believes that the impact of re-organisation is largely behind and the
focus on volume growth is resulting in utilisation levels inching up a bit.
Pricing environment remains challenged and Infosys is trying to balance it
through tweaks in delivery (shared services, non-linearity, fixed price etc).
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