Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Companies / People/  Lower expectations from Infosys: analysts
BackBack

Lower expectations from Infosys: analysts

But new CEO Vishal Sikka is receiving positive reactions over his fresh digital approach to the IT business

Vishal Sikka, the first non co-founder CEO of Infosys. Photo: Hemant Mishra/MintPremium
Vishal Sikka, the first non co-founder CEO of Infosys. Photo: Hemant Mishra/Mint

Mumbai: Hardly two months into his new job as the first non-founder chief executive officer (CEO) of India’s second largest information technology (IT) services provider, Infosys Ltd, Vishal Sikka has been receiving positive reactions over his fresh digital approach to business.

In September alone, the former SAP AG global product head forged partnerships with companies for cloud, big data and enterprise analytics solutions, and gave employees of the traditionally conservative company permission to use Facebook and Twitter at work.

While the media and markets may be excited with the fresh digital approach, analysts are advising a toning down of expectations from Infosys, which will declare its September quarter results on 10 October.

In a 25 September note titled, Infosys Technologies: Too fast; too soon!, Macquarie Capital Securities India (Pvt.) Ltd analysts Nitin Mohta and Karan Parmanandka downgraded Infosys to neutral on the premise that any policy changes made by Sikka will start showing results only in financial year 2015-16. “While the company has a stable top management in place now, the near-term challenges on top-line growth cannot be wished away," the note said.

Till a little over two years ago, Infosys was a darling of analysts and the media, and hailed as the bellwether of the Indian IT industry. Then, the scorching pace of growth at Cognizant Technology Solutions Corp. displaced it from the second spot while India’s largest software services provider Tata Consultancy Services Ltd (TCS) continues to remain the leader by far in the $118 billion Indian IT services industry.

However, when Sikka took over from incumbent S. Shibulal as CEO on 1 August, expectations soared again.

Since 1 August till date, Infosys shares have risen 10.6% while the benchmark Sensex gained 3.9% and the BSE IT Index was up 10.25%. On Thursday, too, while the Sensex lost 1.03% to close at 26,468.36 points, Infosys shares rose 1.21% to close at 3,693.65 apiece while the BSE IT Index gained 1.12% to close at 10,578.38 points.

The Macquarie analysts have acknowledged that Infosys since last year has seen an “improving demand environment, and deal wins", but “...the stock price has now discounted this deal pipeline and leaves little room for execution error..."

The Macquarie analysts acknowledged that Infosys has once again begun concentrating on strengthening its infrastructure management services vertical to compete with companies such as HCL Technologies Ltd, while simultaneously lowering its high non-discretionary revenue pie while driving growth.

Infosys has a higher share of discretionary spending at 37% compared with 22% for TCS, and the analysts believe that Infosys’s pursuit of discretionary wallet has been a major reason for the revenue slowdown at the company.

While Infosys has maintained its dollar revenue growth guidance at 7-9%, the Macquarie analysts believe the guidance will be closer to 8%, “taking account the weakness in the retail vertical and limited hope for acceleration in 2H FY15 (second half of financial year 2014-14)".

On 4 September, JP Morgan India Pvt. Ltd analysts Viju K. George and Amit Sharma, too, wrote that while Sikka “brings good and refreshing ideas to the table", the execution of a differentiated agenda (productized services, platforms and digital solutions) will be important since Sikka will have to create an appropriate ecosystem for the same within Infosys.

They explained that while Sikka saw “great success at SAP" by using the resources and ecosystem available at SAP (product conceptualization and development, marketing, channel-partnerships/alliance building), it is “dramatically different from Infosys whose workforce is not familiar with developing, commercializing and selling products".

They insisted that Sikka may need time to grasp the intricacies of the business before being able to put in place effective restoration mechanisms and monitor them since he has joined Infosys “at a time when its core needs repair (in particular application development and maintenance, or ADM; business process outsourcing, or BPO; infrastructure management service, or IMS; and testing—comprising about two-thirds of the company’s total revenue)".

Other analyst notes have a similar refrain.

In a note on 5 August, Naushil Shah, an analyst with Trust Financial Consultancy Services Pvt. Ltd, said it may take a while before Infosys “fully settles into its new structure. Hence, we would like to wait a while before becoming constructive on the stock. Hence, we initiate coverage on this stock with a hold rating".

Infosys, meanwhile, is pulling out all stops to improve business and employee morale of the company that had seen its attrition rate shoot up to 19.5% in the June quarter against the IT services industry average of 12-13%.

On 24 September, Reuters reported that besides being given easier access to social networking sites such as Facebook, employees at Infosys are being treated to team lunches, get frequent mails from their CEO, are being solicited for new business ideas and are seeing location transfer requests go through more smoothly than before.

On 16 September, Infosys said it is enabling a Japan-based retailer Muji to deploy InteractEdge, which is a platform that uses big data analytics and advanced machine-learning algorithms to facilitate realtime and context-specific recommendations. Two days later, Infosys said it has signed three exclusive partnerships with Microsoft Corp., Hitachi Data Systems (HDS) and China-based telecom vendor Huawei for cloud, big data and enterprise analytics solutions.

But all these changes, insist analysts, will take time.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

ABOUT THE AUTHOR
Leslie D'Monte
Leslie D'Monte specialises in technology and science writing. He is passionate about digital transformation and deeptech topics including artificial intelligence (AI), big data analytics, the Internet of Things (IoT), blockchain, crypto, metaverses, quantum computing, genetics, fintech, electric vehicles, solar power and autonomous vehicles. Leslie is a Massachusetts Institute of Technology (MIT) Knight Science Journalism Fellow (2010-11), author of 'AI Rising: India's Artificial Intelligence Growth Story', co-host of the 'AI Rising' podcast, and runs the 'Tech Talk' newsletter. In his other avatar, he curates tech events and moderates panels.
Catch all the Corporate news and Updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News.
More Less
Published: 26 Sep 2014, 01:34 AM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App

Chat with MintGenie