Infy remains cautious despite BP deal

Infosys Technologies has seen some improvement in client spends. Yet, the country’s second-largest IT services firm chooses to be cautious. This, despite the fact that the company was a beneficiary of BP’s recent outsourcing deal to five IT firms.

“The environment has certainly improved, but this is yet to translate into deal flows. Even the vendor consolidation deals that are happening now are more about defending our turf rather than getting new deals. Besides, clients are more focused on immediate projects,” Chief Operating Officer S D Shibulal told Business Standard. Around 60 per cent of Infy’s business in on a renewal basis.

Shibulal insists that, fundamentally, things have not changed much. Clients are still taking time, and “...the budget closure will happen only by January-February, 2010”. He adds that none of the company’s clients have seen growth in their revenues. And whatever profits Infy’s clients have made is due to cost-cutting, which is not sustainable for a long time.

These are some of the reasons why the company did not choose to revise its guidance despite the street expecting a revision, according to Shibulal.

“One month of aberration does not mean it holds true. But, having said that, we do see traction in sectors. Retail has been a pleasant surprise followed by utilities, lifescience and engineering services. The BFSI (banking, financial services and insurance) segment has also stabilised,” he adds.

He points out that the new deals being contracted are more of maintenance and ‘light-on-works’ kind of projects. “This is where an organisation would like to take costs out,” says Shibulal.

The company, which saw a pricing pressure of 5-6 per cent in the last two quarters, believes that most of the pricing negotiations are completed and about one-third of pricing pressure has been factored in the company’s guidance. However, Shibulal does not rule out some tail-wind effect in this quarter as well.

In its recent report, CLSA mentions that, while 33 per cent exposure to the BFSI segment has been a bane for the company in the downturn, their are signs of new business from the sector.

“IT spending at financial services’ clients is picking up significantly faster than our expectations as well as market consensus. While there remains a case for structural changes in banks’ IT spending priorities, the current imperative to cut costs amid a still troubled environment is driving a spending surge that will trigger an earnings upgrade cycle for financial services heavy stocks,” said the report.