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CEO Meeting note
Infosys CEO, S D Shibulal stressed on “empowerment” of Business Unit
Heads as the key change in Infosys under his leadership. Greater client
engagement and talent supply chain management are the other focus
areas for the CEO. Meanwhile, near-term volume and pricing trends
remain clouded by the macro uncertainty and risk to financial
performance is on the downside. Despite over 20% fall in the stock in last
3 months, we expect the earnings downgrade cycle and concomitant risk
to valuations to keep Infosys’ stock performance muted. We stay cautious
on all tech stocks and have no positive rating in the sector.
Greater “empowerment” of business unit heads is the key change
P&L owners are being given much greater freedom in deal decision-making
(pricing, terms & conditions, staffing) than in the past. Barring 4-5 key
issues, Business Heads need not take approvals from Corporate Office for
deals. Greater freedom also warrants improved governance and CEO remains
focused on tightening that. Infosys intends to allocate senior resources as
Client Partners to 25 clients, which should help improve client engagement.
The increased needs to hire locally (1,500 in US and 500 in Europe are FY12
targets) is driving a harder look at talent supply chain management.
Pricing power remains elusive
Commoditised part of the business (30-35% of revenues) continues to see
pricing pressure due to higher competition and Infosys does not expect any
let-up on that front. While Infosys has not seen too many clients come back
and negotiate for lower prices, pricing expectations are much more muted
compared to 6 months back. Infosys’ response to this lack of pricing power
remains two-fold: aiming for productivity gains in commoditised offerings and
greater investment in platforms/solutions to help differentiate its offerings.
Infosys has already on-boarded over 22 clients on its platforms.
Demand visibility remains challenged by macro uncertainty
Expectedly, Infosys indicated greater uncertainty among clients compared to
a few months back. There are increasing instances of clients re-visiting
investment plans. Clients are giving in-principle OKs for new projects but
giving bridge orders rather than rolling out the entire project. Deal closures
are taking more time and deferral of decision-making is happening in select
instances. While Infosys does not expect any significant decline in 2011
budgets (most projects which have started are unlikely to be cut mid-way),
the key worry is 2012 budgets, where risk remains on the downside.
Cautious view on Infosys stock stays
Money-making in Infosys is contingent on confidence in FY13 street
expectations taking root. However, with quarters becoming in-line to misses
on revenues and outlook becoming riskier (in lieu of the weaker macro), we
see multiple pressure points for earnings and valuations. A weaker currency
remains the only support for FY13 EPS in the interim. Underperform stays.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
CEO Meeting note
Infosys CEO, S D Shibulal stressed on “empowerment” of Business Unit
Heads as the key change in Infosys under his leadership. Greater client
engagement and talent supply chain management are the other focus
areas for the CEO. Meanwhile, near-term volume and pricing trends
remain clouded by the macro uncertainty and risk to financial
performance is on the downside. Despite over 20% fall in the stock in last
3 months, we expect the earnings downgrade cycle and concomitant risk
to valuations to keep Infosys’ stock performance muted. We stay cautious
on all tech stocks and have no positive rating in the sector.
Greater “empowerment” of business unit heads is the key change
P&L owners are being given much greater freedom in deal decision-making
(pricing, terms & conditions, staffing) than in the past. Barring 4-5 key
issues, Business Heads need not take approvals from Corporate Office for
deals. Greater freedom also warrants improved governance and CEO remains
focused on tightening that. Infosys intends to allocate senior resources as
Client Partners to 25 clients, which should help improve client engagement.
The increased needs to hire locally (1,500 in US and 500 in Europe are FY12
targets) is driving a harder look at talent supply chain management.
Pricing power remains elusive
Commoditised part of the business (30-35% of revenues) continues to see
pricing pressure due to higher competition and Infosys does not expect any
let-up on that front. While Infosys has not seen too many clients come back
and negotiate for lower prices, pricing expectations are much more muted
compared to 6 months back. Infosys’ response to this lack of pricing power
remains two-fold: aiming for productivity gains in commoditised offerings and
greater investment in platforms/solutions to help differentiate its offerings.
Infosys has already on-boarded over 22 clients on its platforms.
Demand visibility remains challenged by macro uncertainty
Expectedly, Infosys indicated greater uncertainty among clients compared to
a few months back. There are increasing instances of clients re-visiting
investment plans. Clients are giving in-principle OKs for new projects but
giving bridge orders rather than rolling out the entire project. Deal closures
are taking more time and deferral of decision-making is happening in select
instances. While Infosys does not expect any significant decline in 2011
budgets (most projects which have started are unlikely to be cut mid-way),
the key worry is 2012 budgets, where risk remains on the downside.
Cautious view on Infosys stock stays
Money-making in Infosys is contingent on confidence in FY13 street
expectations taking root. However, with quarters becoming in-line to misses
on revenues and outlook becoming riskier (in lieu of the weaker macro), we
see multiple pressure points for earnings and valuations. A weaker currency
remains the only support for FY13 EPS in the interim. Underperform stays.
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