Stock tumbles 3% on Wednesday

High attrition, longer-than-expected turnaround time and a tepid outlook have prompted analysts to take a negative view of the Infosys stock.

A slew of downgrades

Brokerage firm UBS in its report said it has downgraded Infosys to a ‘sell’, from its earlier ‘buy’ recommendation and believes that the company will disappoint investor expectations in the near term.

This is not the first time that the company has seen such a downgrade. In April last year, other brokerages such as CLSA and Deutsche Bank had downgraded country’s second largest software exporter. Similarly, Centrum Broking, another brokerage firm had a ‘sell’ rating on the stock in October last year, questioning the management’s strategy.

UBS in its report cited several factors for this downgrade. First, the applications services, which Executive Chairman NR Narayana Murthy termed as ‘bread-and-butter’ solutions are under stress, which along with BPO brings in 85 per cent of its revenues, compared with 65-75 per cent exposure for companies such as TCS and HCL Technologies, according to UBS analysts.

Secondly, the high attrition is a cause of concern as it slows down growth, according to the report.

The country’s second-largest exporter saw an exodus of 36,268 employees with an attrition rate of 18.7 per cent during the current fiscal -- the highest in the last few years. According to Angel Broking IT analyst Ankita Somani the company has to rein in high attrition, else recent measures undertaken to improve employees’ productivity would not fructify.

On Wednesday, Infosys closed at ₹3,064, 3.15 per cent down on the BSE.

The downgrade does not surprise analysts.

“In the eye of many customers, Infosys has lost its appeal, leadership and whether the company is even heading in the right direction is a question that investors are asking,” said Peter Schumacher, CEO, Value Leadership Group.

(This article was published on May 7, 2014)
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