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We attended Infosys’s analyst meet. Infosys has not witnessed any project
cancellation/budget cuts and does not foresee any risk to FY12F guidance as of now. Macro
uncertainty remains key risk in near term, in management's and our view.
Infosys not witnessing any abnormalities yet
Infosys is not witnessing any abnormalities in terms of project cancellation /
delay in ramp ups / cuts from clients as of now (even within BFSI).
In line with our view, Infosys also believes that at present, the financial position and
earnings growth trajectory of clients are in much better shape, compared to the last
slowdown in 2008. Therefore, management does not foresee any major growth concerns as
of now unless macro scenario sharply deteriorates hereon.
Management reiterated that clients’ IT spend commitment is more towards short term rather
than longer term. In line with its 1Q12 results’ comments, the company is witnessing some
slowdown in decision making relating to discretionary spend.
Infosys is not considering any change in its recruitment plans in terms of joining dates of
fresh graduates. It continues to recruit lateral talent as planned earlier.
Overall, Infosys believes that there is no need to change its FY12F guidance as of
now. We believe that risk to 2Q12/3Q12 guidance is lower considering low dependence on
new business (more so in case of 2Q12). While for 4Q12, dependence on new business
would be relatively higher in our view and IT spending during the quarter will fall into clients’
CY12 budgets.
Strategic direction to move towards consulting/transformation
Infosys is realigning all its future growth strategies / investments to derive one-third
revenue contribution each from business operations, consulting/transformation and
innovation led delivery models.
After implementing Infosys 3.0, the management is increasingly driving
transformational growth to become more strategic to the clients by offering deeper
domain expertise. In our view, deal pursuance has become more aggressive.
Infosys is also becoming aggressive in driving non-linear growth by offering platform based
services running across verticals or vertical specific solutions to drive non-linearity. As per the
management, pipeline build up is robust and the company continues to close deals despite
uncertain macro environment (closed three new deals in the last week despite increased macro
headwinds).
With increasing commoditization in business operations space (60-65% of revenues
currently), Infosys is increasingly exploring innovative models (less dependent on
employees) to provide these services to protect margins.
Infosys 3.0 has started resulting in increasing mindshare of Infosys with clients.
While we agree that Infosys 3.0 is a step in right direction to increasingly compete with
global MNCs, the execution of the strategy and balancing growth within business operations
segment would be key in our view
Demand trends within various verticals
Management spoke of continued demand in BFSI and expects regulatory and
compliance spending to drive demand in the medium term. It believes the job cuts announced by
major banks do not have any major bearing on IT demand yet, and it is more to reposition front
end staff to emerging markets.
Infosys is developing several solutions in the Energy and Utilities verticals. Management
spoke of strengthening domain capabilities in the upstream and midstream segments, but lower
focus on downstream segment, where margins are quite low for Indian IT.
Management expects growth in the telecom vertical to remain moderate due to rebalancing
of portfolio from wireline to wireless. The re-bidding by BT (one of the largest telecom clients) is a
key risk from revenue perspective, but management highlighted that it could target business of
other vendors through differentiated offerings. Overall, it expects telecom growth to bounce back
from the later part of FY12.
The retail and manufacturing sector has not seen any change in demand trends in
the recent past. However, management cautioned that a sharp decline in
consumer/business confidence could dent the outlook for these sectors.
Our view
In line with our recent sector note “Down but not out” (dated 10 August 2011),
macro headwinds would outweigh the medium-longer term fundamentals and
therefore we continue to expect short term pressure on the sector.
Despite management not witnessing any demand related abnormalities yet, we do
not rule out some of these given the increased macro headwinds.
However, considering most of the company specific issues are behind, we remain long
term positive on Infosys.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We attended Infosys’s analyst meet. Infosys has not witnessed any project
cancellation/budget cuts and does not foresee any risk to FY12F guidance as of now. Macro
uncertainty remains key risk in near term, in management's and our view.
Infosys not witnessing any abnormalities yet
Infosys is not witnessing any abnormalities in terms of project cancellation /
delay in ramp ups / cuts from clients as of now (even within BFSI).
In line with our view, Infosys also believes that at present, the financial position and
earnings growth trajectory of clients are in much better shape, compared to the last
slowdown in 2008. Therefore, management does not foresee any major growth concerns as
of now unless macro scenario sharply deteriorates hereon.
Management reiterated that clients’ IT spend commitment is more towards short term rather
than longer term. In line with its 1Q12 results’ comments, the company is witnessing some
slowdown in decision making relating to discretionary spend.
Infosys is not considering any change in its recruitment plans in terms of joining dates of
fresh graduates. It continues to recruit lateral talent as planned earlier.
Overall, Infosys believes that there is no need to change its FY12F guidance as of
now. We believe that risk to 2Q12/3Q12 guidance is lower considering low dependence on
new business (more so in case of 2Q12). While for 4Q12, dependence on new business
would be relatively higher in our view and IT spending during the quarter will fall into clients’
CY12 budgets.
Strategic direction to move towards consulting/transformation
Infosys is realigning all its future growth strategies / investments to derive one-third
revenue contribution each from business operations, consulting/transformation and
innovation led delivery models.
After implementing Infosys 3.0, the management is increasingly driving
transformational growth to become more strategic to the clients by offering deeper
domain expertise. In our view, deal pursuance has become more aggressive.
Infosys is also becoming aggressive in driving non-linear growth by offering platform based
services running across verticals or vertical specific solutions to drive non-linearity. As per the
management, pipeline build up is robust and the company continues to close deals despite
uncertain macro environment (closed three new deals in the last week despite increased macro
headwinds).
With increasing commoditization in business operations space (60-65% of revenues
currently), Infosys is increasingly exploring innovative models (less dependent on
employees) to provide these services to protect margins.
Infosys 3.0 has started resulting in increasing mindshare of Infosys with clients.
While we agree that Infosys 3.0 is a step in right direction to increasingly compete with
global MNCs, the execution of the strategy and balancing growth within business operations
segment would be key in our view
Demand trends within various verticals
Management spoke of continued demand in BFSI and expects regulatory and
compliance spending to drive demand in the medium term. It believes the job cuts announced by
major banks do not have any major bearing on IT demand yet, and it is more to reposition front
end staff to emerging markets.
Infosys is developing several solutions in the Energy and Utilities verticals. Management
spoke of strengthening domain capabilities in the upstream and midstream segments, but lower
focus on downstream segment, where margins are quite low for Indian IT.
Management expects growth in the telecom vertical to remain moderate due to rebalancing
of portfolio from wireline to wireless. The re-bidding by BT (one of the largest telecom clients) is a
key risk from revenue perspective, but management highlighted that it could target business of
other vendors through differentiated offerings. Overall, it expects telecom growth to bounce back
from the later part of FY12.
The retail and manufacturing sector has not seen any change in demand trends in
the recent past. However, management cautioned that a sharp decline in
consumer/business confidence could dent the outlook for these sectors.
Our view
In line with our recent sector note “Down but not out” (dated 10 August 2011),
macro headwinds would outweigh the medium-longer term fundamentals and
therefore we continue to expect short term pressure on the sector.
Despite management not witnessing any demand related abnormalities yet, we do
not rule out some of these given the increased macro headwinds.
However, considering most of the company specific issues are behind, we remain long
term positive on Infosys.
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