Posts Tagged ‘Infosys’

Gulf between Infosys & TCS narrows in September quarter

October 22nd, 2014

Infosys, India’s second-largest IT services exporter, has narrowed the gulf with its rival Tata Consultancy Services (TCS) in certain growth parameters like organic growth and operating profit margins in the just concluded September quarter, setting the stage for an interesting battle between the two Indian IT majors.Outsourcing34

TCS has been consistently maintaining a definite lead over Infosys in all the key metrics like revenue, profit, OPM, attrition rates and there were no signs of any closure of the gap between the two in the past many quarters. However, at the end of second quarter of FY15 the revenue growth reported by Infosys was 3.1% while it stood at 3.6% for TCS, without taking into account the inorganic revenue from the buyout of its stake in its venture with Mitsubishi. In the same vein, the gap between the two in terms of operating profit margins (OPMs) closed down to just 0.7% when compared to 1.2% in the preceding sequential quarter.

The surprising aspect in this quarter was the differing performance by Infosys and TCS with regard to market expectations. Infosys, which positively surprised the markets with its second-quarter performance, also received the boost with the presence of new CEO, Vishal Sikka, who is also the first non-founder to head the company providing an indication of the way forward for the company. As BNP Paribas, a brokerage house in its note following the results, said, “The new CEO’s strategy is aimed at transforming Infosys into a ‘next-generation’ services company, more details of which are due by April 2015. Infosys believes a successful shift could mean revenue growth of 15-18% and an EBIT margin of 25-28% in the long term, which are significantly higher than current levels. “

Sikka during investors calls post the results spoke about the increasing use of automation, artificial intelligence by Infosys while bringing new paradigm in terms of design thinking and reskilling of their employees. There are enough strong indications that Infosys would be able to achieve its revenue growth guidance of 7-9% for FY15.

However, it would be a long haul for Infosys to match up with TCS, as the latter over the last two years has consistently maintained a very steady growth rate outperforming the industry benchmark. Today, the revenue gap between Infosys and TCS for the second quarter of FY15 stood at $1.7 billion while the net profit difference being $361 million. At one point of time though Infosys had lower revenue than TCS, its OPMs and profit were much higher.

Industry observers say that TCS has set the pace for others in the Indian IT industry. Pradeep Mukherji, president, Avasant, an IT outsourcing advisory firm, said, “TCS is one of the most robust companies in terms of their depth in leadership, range of offerings and the extent of geographic reach. Their DNA is completely different.”

Source:http://indianexpress.com/article/business/companies/gulf-between-infosys-tcs-narrows-in-september-quarter/

IT: Prefer Infosys, TCS, Wipro says Prabhudas Lilladher

October 17th, 2014

According to ISG forecast, broader market ACV lagged, but remains strong YTD . The weakness was in‐line with expectation, and they expect to see a recovery in Q4CY14 with continued strength in CY15. They expect 2014 ACV to exceed 2013 by double digits despite tepid quarter.Outsourcing28

ISG highlighted about the challenges faced by IMS players as cloud infrastructure providers are denting the existing businesses of IMS players. However, ADM+BPO proposition sees a renewed sign of life as Digitization adoption drives newer spends in the segments.

Continental Europe continues to see stronger adoption for Outsourcing/Offshoring from geographies like France, Italy, Spain etc. However, the current trend is very different from earlier wave of Anglo‐Saxons outsourcing wherein India became the focal point of outsourcing centres. Current drive of outsourcing from Continental Europe is pushing for global delivery models  with presence in newer locations like Poland, Brazil, Philippines, etc. But, we do not see any loss in competency for Indian Vendors as they swiftly adopt for GDM.

Among the verticals, Financial Services grew strongly in Americas as new scope contracts return. In APAC and EMEA, manufacturing has witnessed strong growth.

Among the mid‐caps in our coverage universe, NIIT Tech and KPIT Technologies got mentioned in “The Breakthrough 10 Sourcing Standouts” (companies with revenue less than $2bn) in Americas.

CY14 has panned out in‐line with the expectation in terms of deal closures. According to ISG, a build‐up of transaction is likely to yield one of the strongest year in the last one decade. We see Digitization drive as an encouraging trend for Infosys that is in‐sync with their current commentary. We prefer Infosys  , TCS  , and  Wipro  among tier‐1

Source:http://www.moneycontrol.com/news/brokerage-recos-sector-report/it-prefer-infosys-tcs-wipro-says-prabhudas-lilladher_1205351.html

Infosys needs to keep foot off the accelerator

October 14th, 2014

Infosys knows what it is to lose form. Once the leader of India’s IT outsourcing industry, over the past five years the company has trailed rival Tata Consultancy Services. In that time, TCS has returned 450 per cent and lifted its return on equity by 6 percentage points to 44 per cent. Infosys’ ROE has fallen by almost the same amount, to 19 per cent. Its stock has doubled, but trails TCS’s badly.Outsourcing17

Second-quarter numbers released on Sunday may herald a comeback for the old-timer.

Net income was up nearly a third from the year before, beating analysts’ estimates. And despite volatile currencies, Infosys maintained its ­full-year target of high single-digit revenue growth in US dollar terms. The stock bounced 7 per cent.

A large part of the improvement has come from a pick-up in orders, lifting profitability. Gross margins fell steadily over the three years from September 2010 and hit a low of 35 per cent a year ago. Barclays attributes this mostly to over-hiring on optimistic demand forecasts.

As orders recover, margins in the second quarter have already improved 3 per cent from the lows.

Infosys appointed a new chief executive early this year, Vishal Sikka. Although he has been welcomed as the first non-founder to make it to the top, concerns still linger regarding his focus on innovation. Infosys has about $US5 billion ($5.7 billion) in net cash on its balance sheet. And Mr Sikka says he plans to invest in growth. But previous chiefs’ attempts to move into “higher value” businesses fared poorly. After a shaky couple of years, steady execution is more welcome than a strategic shift. The company did increase its interim dividend by half, paying out 60 per cent of second-quarter earnings. But this can be paid out of cash flow – leaving the cash balance, and worries about a big merger, undisturbed. Mr Sikka thinks Infosys needs two more years to reach full speed. He should make sure the acceleration is safe and steady.

Source:http://www.afr.com/p/business/companies/infosys_needs_to_keep_foot_off_the_4fsMOQe6B4TaZFm00obicI

Infosys shares bounce ahead of strategy update

October 13th, 2014

Shares in Infosys jumped 6 per cent on Friday as the Indian IT bellwether reported an improvement in margins and a bonus share issue, as investors await guidance from the company’s new chief executive.Outsourcing14

Vishal Sikka, who took the reins in August, is expected to outline his strategy later today, as the former SAP executive looks to revive the struggling outsourcer with new high-growth software development in areas such as cloud computing and data analytics.

In the first set of results under his leadership Infosys posted better than expected net profit of Rs31bn ($500m) in the three months ended in September, up 29 per cent year-on-year, on revenues of Rs133.4, up 2.9 per cent.

The Bangalore-based group had previously forecast net profit of Rs29bn on revenues of Rs132.1bn, according to analysts’ consensus predictions by Thomson Reuters.
The cash-rich company also announced an interim dividend of Rs30 per share, and said it planned to issue one bonus share for every share held.

“The board approved and recommended the issuance in order to increase the liquidity of its shares and to expand the retail shareholder base,” the company said.
The second quarter of the financial year is a seasonally strong period for the IT services sector, as client spending is solid. Indian groups have also been helped by currency movements and the fact that wage increases occurred earlier in the year.

“This is sentiment positive for the stock,” says Ankita Somani, an IT analyst at MSFL research. “But what I want to see now is what Infosys is planning in terms of its big bets? What are they going to do to catch up with peers in terms of dollar revenue growth rates?”

A pioneer in the IT outsourcing sector, Infosys has fallen behind rivals such as Tata Consultancy Services, and Mr Sikka has suggested it may be another two years before the group’s financial results improve again.

Mr Sikka on Friday said that the company’s core services business would not be compromised by the new focus on innovation. “Without one we are just dreamers and without the other one we are just grinders,” he said.

Industry analysts remain concerned about high staff turnover at the group. At least 10 senior executives have quit in roughly a year, prior to Mr Sikka’s appointment and the new leader is not planning further restructuring.

“We are very fortunate to have a young, dynamic and a very passionate management team,” Mr Sikka said. “I see no structural reasons to make any changes at this point.”
The churn began after co-founder and outsourcing pioneer, Narayana Murthy, returned to the group to shore up the troubled company.

Before he stepped down as executive chairman in June, Mr Murthy had focused on cutting costs and reinforcing Infosys’s bread-and-butter services business, following a mistimed attempt to move into higher value services under the “Infosys 3.0” strategy.

“This is the right time, when the macroeconomic environment is improving, they have a new leader who’s a tech visionary,” said Shashi Bhusan, an analyst at Mumbai-based brokerage Prabhudas Lilladher. “I think many of the initiatives they started two or three years back will flourish under this new leadership.”
Infosys shares were up 6 per cent by 10am in Mumbai at Rs3,837.70.

Source:http://www.ft.com/cms/s/0/31a4bada-503b-11e4-8645-00144feab7de.html#axzz3FzzzgUGS

Top 5 IT players likely to report robust growth in Q2

October 9th, 2014

Top IT stocks fell sharply on Wednesday after touching record intra-day levels a day earlier. Citi Research India, in a report, said it was toning down optimism over the sector’s future performance, apart from downgrading Infosys ratings from buy to neutral, Tech Mahindra from neutral to sell, and Mindtree from buy to sell, a move which left investors wary of the sector. These stocks may exhibit greater volatility in coming weeks, depending on the quarterly performance of the companies.Outsourcing3

However, despite the scepticism, top five IT players are expected to report robust sequential growth in revenue and net profit for the September 2014 quarter because of better demand traction in the US and a reviving European market for IT outsourcing. A lack of sharp appreciation in the rupee against major currencies compared with the quarter-ago levels, too, augurs well.

The sample of TCS, Infosys, Wipro and Tech Mahindra is expected to report a growth of 5.7% in sales and 3% in net profit sequentially. It’s based on average of estimates reported by eight brokerages, including Barclays Research India, Citi Research India, Edelweiss Securities, Kotak Institutional Equities, Motilal Oswal Securities, MSFL, Anand Rathi Research and Religare Institutional Research, and internal estimates of the ET Intelligence Group.

Compare this with a lacklustre 0.1% growth in revenue and 1.9% drop in profit sequentially for the June 2014 quarter. TCS will stand out due to expected higher organic growth and the benefit from integration with Mitsubishi joint venture.

Historically, the demand scenario is upbeat during the September quarter for Indian IT outsourcing companies. This will benefit top players such as TCS and HCL Technologies, which have shown aggression in bagging large multi-year projects from the US and European clients.

Among the top five, TCS is expected to report the highest dollar-denominated revenue growth of 5-7% sequentially. Apart from growth in existing business, it also includes an increase of 2-2.5% due to integration of revenue from the joint venture with Mitsubishi. This will translate into 8% growth in revenue at Rs 23,847 crore, according to average estimates.

Other players in the top five are likely to report 4-4.5% revenue growth in rupee terms. Apart from revenue growth, TCS will also lead the pack on the net profit front with a likely 7% growth sequentially. Companies including Wipro and HCL Tech are likely to show deceleration in net profit due to the impact of increase in wages. Their operating margin is expected to drop by 30-40 basis points.

Investors will closely track the management commentary of Infosys for initial signs of recovery. It will be the first full quarter for the company under new CEO Vishal Sikka.

Source:http://economictimes.indiatimes.com/markets/stocks/news/top-5-it-players-likely-to-report-robust-growth-in-q2/articleshow/44729430.cms

Jack Palmer’s New Infosys Lawsuit Shows Indian IT Industry’s Visa Troubles Won’t Go Away

October 7th, 2014

Jack Palmer, the former Infosys Ltd. employee whose lawsuit alleging harassment by the Indian IT services provider was thrown out in 2012, has filed a new suit against the company. The move highlights the $118 billion outsourcing industry’s woes that arise from its dependence on American work visas.Outsourcing45

The new lawsuit, filed in New Jersey District Court on Oct. 2, names Infosys, founder Narayana Murthy, former CEO SD Shibulal and others as defendants. In the original whistleblower lawsuit, which a court in Alabama threw out, Palmer had claimed he was harassed by Bangalore-based Infosys for pointing out alleged wrongful use of certain types of short-term work visas.

“Palmer’s current complaint in the United States District Court in New Jersey is a repetition of issues that were tried and dismissed by a federal court in 2012,” Infosys said in an emailed statement to International Business Times on Monday. “Palmer resigned in 2013 November and released the company from the charges he has alleged in the complaint. We believe this is without any legal merit and will vigorously defend this complaint. We expect the issue to be resolved at the earliest.”

India’s IT outsourcing industry, which includes large India-based centers of U.S. multinational companies, takes advantage of the H-1B visa to place short-term work visa holders at client sites in the U.S. when required, avoiding the costlier option of hiring U.S. citizens locally. The non-immigrant visa allows skilled workers to work in the U.S. for up to six years. The practice has attracted close scrutiny from U.S. lawmakers, including visa fee increases and a Justice Department investigation that Infosys settled for $34 million last year. There are ongoing attempts to change the rules governing H-1B visas such as those proposed in the larger immigration overhaul being debated in Congress.

Changes proposed to H-1B rules were only one part of the bill S. 744, titled Border Security, Economic Opportunity, and Immigration Modernization Act, introduced in the spring of 2013 by a bipartisan group of eight senators, with Sen. Charles Schumer as the main sponsor. The bill seeks to overhaul America’s immigration system, from securing its borders to fixing the status of some 11 million illegal immigrants.

Changes to the H-1B visa program could include barring any company, which has more than 15 percent of its staff holding H-1B or L1 visas, from placing those staff at client sites in the U.S. Instead, the company would have to use locally hired Americans. The L1 visa is another type of non-immigrant work visa used mostly for intra-company transfers.

This would directly hit the Indian IT outsourcing model, which relies heavily on H-1B visas. Typically, two-thirds of the staff of Indian IT companies in the U.S. are those imported on these visas. The ban would mean either providing services from outside the U.S. or hiring locals, which would in turn mean a higher cost of doing business.

The House of Representatives was looking to debate its own version of the bill, passed by the Senate in June 2013, even as the Indian IT industry lobbied Washington hard to water down those proposals. However, events including House Majority Leader Eric Cantor’s defeat in the Virginia primaries overtook the lower house’s debate on the bill, diminishing the prospect of the proposals becoming law soon.

“We’re certainly not assuming it (immigration reform) as dead or gone away, we’re viewing it more as postponed,” Gordon Coburn, president of Cognizant Technology Solutions Corp., told investors in a meeting organized by Deutsche Bank on Sept. 10.

Cognizant, with the bulk of its staff in India, and its Indian rivals such as Tata Consultancy Services Ltd. and Infosys, are among the biggest beneficiaries of the H-1B visa program.

“Immigration bill, though it is still not off the table, there is not much noise in the last couple of quarters, but with the mid-term elections you could again see noise levels building up,” Rajiv Bansal, chief financial officer of Infosys, told investors at a conference organized by brokerage CLSA Ltd. in Hong Kong on Sept. 14. He was, however, speaking in the context of why it’s important for Infosys to maintain a large cash reserve.

A second, less onerous, change proposed was that companies must progressively reduce the proportion of their U.S. staff holding non-immigrant visas (predominantly H-1B and some L1 visas) from the fiscal year after 2016. At most, 50 percent of their U.S. staff could be non-immigrants and the other half must be U.S. citizens.

The current annual cap on the number of H-1B visas awarded is 65,000, with an additional 20,000 that can go to graduates of advanced degrees from U.S. universities. This is for the fiscal year 2015 that begins Oct. 1 this year. The immigration bill, however, includes provisions to raise the cap to as much as 180,000. U.S. Citizenship and Immigration Services said on April 7 that it had received enough applications to hit the cap for the current year, and a computer-generated random selection process will be used to select those who get the visas.

Palmer’s original lawsuit that was dismissed included an allegation that Infosys misused another type of visa, the B-1 visa, to send IT staff from India to U.S. client sites, though such visas can only be used for purposes like business meetings and not for billable work.

Source:http://www.ibtimes.com/jack-palmers-new-infosys-lawsuit-shows-indian-it-industrys-visa-troubles-wont-go-away-1699657

Lower expectations from Infosys: analysts

September 26th, 2014

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. Outsourcing28

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 Rs.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.

Source:http://www.livemint.com/Companies/X2EFM0PqlSh8fSyqxLMjIP/Lower-expectations-from-Infosys-analysts.html

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