Infosys is no longer Special; Stop overreacting to its Earnings

The question investors should ask Infosys is not whether their earnings will be good or bad but what’s their next billion dollar move

Shishir Prasad
Published: 22, Apr 2013

I have been a business journalist for 16 years and worked with Business Standard, Businessworld, Economic Times and Forbes India. Most of those years were spent writing on strategy, technology and private equity.

Did the market overreact to Infosys’ results on April 12? Now that the results of all Indian IT majors are out, the answer is yes but not for the reasons normally bandied out. The overreaction is surprising because Infosys hasn’t been taking the entrepreneurial risks to open new lines of revenue.

Infosys created the guidance tiger in India. Over the last decade it has generally outperformed its guidance and beaten analyst expectation. Each time that happened there, stock delivered good returns. Now that it finds itself on the sharp end of the stick, there should be no reason to complain.

The reason for overreaction is that investors continue to believe that Infosys is still that special company it used to be 10 years ago. This is what is most surprising. Infosys probably gets the “process” of IT services better than any other Indian IT company but is it the most innovative; the most risk-taking; the most visionary? I would think not.

Its competitors in India, be it Tata Consultancy Services or HCL Tech, or outside India, be it Cognizant or Accenture, have done things that Infosys has not done.

In 2003, when Nandan Nilekani had come for a Nasscom press meet in Mumbai, he had summed up the challenge before Indian IT services quite simply. “Accenture and IBM will try and adopt India as an outsourcing base. That will mean employing thousands of software engineers in India. Indian companies will have to move up the value chain and offer high value services,” he had said. Today, Accenture employes approximately 80,000 people in India, about a third of its global workforce. IBM has close to 100,000 people in India. Is Infosys or a TCS seen in the same light as Accenture or an IBM Global Services? Not yet.

It is here that an HCL Tech, a Cognizant or a TCS has shown some risk-taking ability to open new lines of business that has worked for them. Infosys has consistently shown a diffidence to start stuff that has the potential of adding a billion dollars over 3-5 years. About seven years ago TCS bought Pearl and then during the credit crisis bought Citigroup’s BPO units.

Today these businesses deliver close to 12-15% of its topline. HCL Tech hitched its wagon to the infrastructure management services almost six years ago. Today almost a quarter of its revenue comes from that line of business. Cognizant has focused on the healthcare vertical and close to a quarter of its revenues now come from that vertical.

So in the business model either you need a new offering or you need to find a new industry that wants your product or services. Without a new growth area or a growth driver most companies find it hard to increase profitability. Infosys is no different.

So the question investors should ask Infosys is not whether their earnings will be good or bad but what’s their next billion dollar move.

  • Sidharth Mishra

    Hi Shishir ! While reading the article I was constantly feeling this sense of unease as I am a new member to the Infy family and am well aware of the significant headway they're making into Products, Platforms and Solutions. The kinds of Projects they have up their sleeves are nothing less than Visionary. Besides that, a product they recently launched named Infosys BigDataEdge aims at making a dent in the Big Data Revolution that is emerging as a major focus area in all companies worth their salt. That's just the tip of the iceberg. Although we have been a bit orthodox in our operations and in the way we dealt with clients, we have more than learnt from our mistakes. We are half-way inside the road less travelled and we see the horizon ! Thank you.

    on Apr 26, 2013
    • Berenice

      It's no surprise that Infosys has been keinepg itself busy in preparing for what 2010 may bring in business and profit. This hectic sense of urgency could be the very thing that could bring Infosys the advantage through the year of expected economic recovery.

      on May 7, 2013
  • Joydeep Bhattachaya

    Shishir, I am sure you have done your homework and research before publishing this article, so I don't want to question you there. However, are you aware that Infosys has made some significant headway into the BPaaS solutions? Go to their website and find out what they have got under Platforms and Products. They DO have some significantly large deals under their belt in the last couple years. Have you analyzed their earnings statements and considered the impact of this new business unit? Your article would have been stronger if you had these facts along with some interview snippets rather than expressing just opinions, which are cursory at their best! Cheers Joydeep Bhattacharya ex-Infoscion

    on Apr 26, 2013
  • Samin Sarkar

    Good article, but not sure if the lack of their next billion dollar move is the main factor in Infy's woes. After all, their main competitors still operate in the same landscape - and seem to have succeeded in taking market share away from Infy. That eroding market share seems a more potent threat than anything else at this time.

    on Apr 26, 2013
  • Alok

    Hi Shishir, good article. However, would like to point out a couple of typos - firstly, under your name, "occasionally" has been misspelt and secondly, in the article "employs" has also been misspelt .

    on Apr 23, 2013
    • Shishir Prasad

      Thanks for pointing out the errors Alok. We will get the changes done!

      on Apr 24, 2013
  • Sachi Mohanty

    So, are you saying good-old Infy is just being too "conservative"? I guess at least Infosys' numbers are trust-worthy. And they don't make "incredible" claims about "putting employees first." @sachi_bbsr

    on Apr 23, 2013
    • Vijay

      sachi, yes I am in total agreement with you on the point of infosys refraining to make talk promises. employee first is a total farce....its a strategy which simply is aimed at fooling the non Indian customers...... no Indian customer ever endorsed this jargon, as they know the reality !

      on Apr 26, 2013
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