Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Infosys 3.0 emphasizes emerging technology themes
and greater verticalization, but these by themselves
are hardly differentiators; maintain Neutral
• Infosys 3.0 identifies seven technology themes. However, we believe that
identifying themes in and of itself does not provide a competitive
advantage. Peers have identified similar themes. TCS articulates themes, some
of which include analytics, mobility and cloud; it has already rolled out
comprehensive programs around them, cutting across industry segments. In a
similar vein, Wipro has also articulated seven themes under the direction of the
CTO’s office. The key lies in execution. We would watch how Infosys
executes on them.
• Consolidating go-to-market strategy along fewer verticals than before
potentially presents the same set of problems that we believe existed
earlier. For example, Prasad Thrikutam, who was earlier in charge of energy,
utilities and services (11% of revenues), has now added responsibility for
communication segment. P&L owners in Infosys have become bigger. We had
discussed the potential perils of this concentration in our Note "Still a few
wrinkles to iron out; some are new and some are old; reiterate Neutral” (dated
March 4, 2011). In contrast, TCS has well over 20 P&L industry/sub-industry
P&L owners. This structure seemingly confers greater autonomy, manageability
and entails lesser concentration risk. TCS’ decentralization and numerous mini-
CEO structure contrasts with Infosys’ greater consolidation of power and P&L
ownership. The latter is perhaps better suited for smaller companies.
• On the positive side, fuller verticalization of sales/delivery across all
geographies, including ROW, helps present a unified face. Notably,
Cognizant believes in and has executed a fully verticalized model. Subverticalization
is gaining prominence in the Indian IT industry as discussed in
our report “The Indian IT enterprise of 2011 and beyond; charting the changing
future” (dated Mar 17, 2011). For example, consumer & packaged goods in
retail is treated differently from luxury brands; thus, they could both have
dedicated sales & delivery resources.
• On the negative side, management indicated limited possibility of fungibility of
workforce on account of its verticalization drive. We believe at the junior
levels (0-3 years’ experience), the imperative of industry specialization is
lesser. Greater fungibility of junior resources across business units may
help achieve higher utilization and flexibility as resources can be drawn
from business units that can spare resources where demand is stronger.
TCS has a relatively more fungible workforce at the junior levels.
• Retain Neutral rating on Infosys. Still prefer TCS, Wipro and HCLT (all
OW). We believe the current low premium of Infosys’ valuation vis-a-vis Wipro
of 5% (on FY12 P/E valuations) might be a tactical trade in favor of Infosys.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Infosys 3.0 emphasizes emerging technology themes
and greater verticalization, but these by themselves
are hardly differentiators; maintain Neutral
• Infosys 3.0 identifies seven technology themes. However, we believe that
identifying themes in and of itself does not provide a competitive
advantage. Peers have identified similar themes. TCS articulates themes, some
of which include analytics, mobility and cloud; it has already rolled out
comprehensive programs around them, cutting across industry segments. In a
similar vein, Wipro has also articulated seven themes under the direction of the
CTO’s office. The key lies in execution. We would watch how Infosys
executes on them.
• Consolidating go-to-market strategy along fewer verticals than before
potentially presents the same set of problems that we believe existed
earlier. For example, Prasad Thrikutam, who was earlier in charge of energy,
utilities and services (11% of revenues), has now added responsibility for
communication segment. P&L owners in Infosys have become bigger. We had
discussed the potential perils of this concentration in our Note "Still a few
wrinkles to iron out; some are new and some are old; reiterate Neutral” (dated
March 4, 2011). In contrast, TCS has well over 20 P&L industry/sub-industry
P&L owners. This structure seemingly confers greater autonomy, manageability
and entails lesser concentration risk. TCS’ decentralization and numerous mini-
CEO structure contrasts with Infosys’ greater consolidation of power and P&L
ownership. The latter is perhaps better suited for smaller companies.
• On the positive side, fuller verticalization of sales/delivery across all
geographies, including ROW, helps present a unified face. Notably,
Cognizant believes in and has executed a fully verticalized model. Subverticalization
is gaining prominence in the Indian IT industry as discussed in
our report “The Indian IT enterprise of 2011 and beyond; charting the changing
future” (dated Mar 17, 2011). For example, consumer & packaged goods in
retail is treated differently from luxury brands; thus, they could both have
dedicated sales & delivery resources.
• On the negative side, management indicated limited possibility of fungibility of
workforce on account of its verticalization drive. We believe at the junior
levels (0-3 years’ experience), the imperative of industry specialization is
lesser. Greater fungibility of junior resources across business units may
help achieve higher utilization and flexibility as resources can be drawn
from business units that can spare resources where demand is stronger.
TCS has a relatively more fungible workforce at the junior levels.
• Retain Neutral rating on Infosys. Still prefer TCS, Wipro and HCLT (all
OW). We believe the current low premium of Infosys’ valuation vis-a-vis Wipro
of 5% (on FY12 P/E valuations) might be a tactical trade in favor of Infosys.
No comments:
Post a Comment