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Infosys is expected to make a course correction sometime during the second half of this fiscal and probably issue a revised outlook as well.
An Infosys spokesperson, however, did not comment stating that it is in a silent period ahead of the first quarter results, which will be announced on July 12.
An IDFC report said the IT major will make these changes during the middle of this fiscal year. “The new management is expected to reassess the situation and chalk out a strategic roadmap with a revised outlook in the middle of this fiscal year,” the report said.
India’s third largest software exporter, recalled its former CEO, NR Narayana Murthy, a few weeks after it shocked the market with a guidance of 6-10 per cent for 2014 fiscal, which is lower than Nasscom’s industry growth estimates.
Wall Street analysts such as JP Morgan, Sanford C Bernstein are among the four equities research analysts who are pessimistic on the Infosys stock. This is due to multiple factors. Analysts opine that profit margins of the company, which is the highest, is coming under pressure due to lesser productivity of employees, inability to win big deals, its investments in Infosys 3.0 strategy, wage hikes and higher visa costs.
Employee productivity, measured in the form of utilisation is 71.4 per cent in March this year, lower than 80 per cent utilisation that the company clocked in December 2010.
However, the Infosys management is taking steps to address these concerns. In the recently held AGM, Murthy has chalked out a detailed growth strategy that would refocus on its bread and butter outsourcing services (such as BPO or maintaining codes for Fortune 500 companies), which has been coming under increasing pressure due to commoditisation and competition winning deals from Infosys at lower margins. Some analysts have given thumbs up for this strategy.
Price war
“Flexibility in pricing would result in a price war and coupled with the way they have decided to go after projects would result in them winning more deals,” said Sundararaman Viswanathan, Manager – Consulting, Zinnov. Others agree. A.K. Prabhakar, Senior Vice-President - Equity Research, Anand Rathi, is positive of the company’s prospects with this changed strategy.
Bread and butter services form 70 per cent of the total IT market globally and are important for growth, according to a report by JP Morgan IT analyst Viju K George.
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