Infosys Limited - Are we getting a discount or no?


(Shailesh) #142

I think we need to discuss cannibalisation process more …

As business head I have seen cannibalisation is more stronger in products across industries as compared to services esp in B2B …

Corporates hate to give up on services / human touch --> whether it is as rudimentary as housekeeping, security to more complex IT product customisation …

Every decade brings in new IT products and technologies and most senior management staff just don’t understand how this technology can be leveraged ( In 1980s it was computers , In 1990s it was internet , 2000s : Social Media , Now in 2010s : Blockchain , AI etc … )

These management and their staff need to handholded and that means IT services will be there so long technology throws in new products and technologies

Now the point comes will Indian IT services have competitive advantage …

I think India has large first mover advantage and scale … plus Indian IT services have proven to be Anti fragile as compared for most industries … Inspite of that Indian IT can fail and that is where MOS is critical … Low PE gives that comfort …

Now look at PE many of industries which these IT services can disrupt - Retail, Automobile, Telecom FMCG, Utilities, Pharma etc …

Now that is choice we have as investors - We need to pick what will give us best risk adjusted returns


(JOSE ABRAHAM) #143

The reason why I don’t fancy investing in Infosys is that I think the company is past its prime and growth will taper off going forward. Some tailwinds like rupee depreciation may help it occasionally but unlike the high PE FMCG firms, the future growth is not visible to an average investor like me. With most of the business coming from the US, even degrowth is feared. These are just my perception without any deep study. Moderators may delete if inappropriate.


#144

Every decade or so, infosys and companies alike comes with long term strategy… For survival, growth and relevance. Right now it’s infosys 3.0…as per hearsay.


(Shailesh) #145

Infosy is mid cap IT by global standards with just $10 billion annual revenues . It has negligible market share across the segments it operates . The problem is Indian IT management never focussed on growth ( which they seems to be doing now )

To give context just a small segment like IOT market size is $ 200 billion ++

Now can Infosys or any Indian IT services company can take slice of multiple opportunities coming in their way in 2020s and beyond is big question … The opportunities are …

  1. 5G rollout and explosion of IOTs
  2. Autonomous car / mobility
  3. Smart cities / utilities / home / office etc
  4. Digitisation of traditional business
    and many more …

(Amit Jain) #146

Which Indian organization, do you think, is best equipped to adapt to the changing scenario in IT?

TCS, I think.


(Shailesh) #147

Not sure … All are trying their best for same pie … currently Accenture seems to be leading the battle …


#148

Technology services in not winners take it all market. Customers split work among few vendors to derisk. So all players with good management and HR practices will do well. Infosys/TCS/Accenture/Cognizant all are at top of this game.


(Shailesh) #149

To highlight the point how difficult it is for Management to select and customise right software products for their business …

The following is Retail Tech products … Imagine you are head of Retail business and you need to decide where you will get highest ROI and which company you need to partner with … That is nightmare


#150

Good perspective. That explains the fact smaller players don’t stand much chance. If you see 100s of these companies started in early 1990s. Only 4 really took off and scaled in meaningful way - TCS, Infy, Wipro, HCL + Accenture and Cognizant. Larger ones kept growing faster than small companies.


(Shailesh) #151

That is why Mid cap IT are increasingly focusing on niches where they can compete better than large players …

Another model that is working is like the way financial advisors do – sell advice and sell products also .

Most of IT services are resellers of product companies … They get consultancy fees , distributor margin and installation/ customisation fees …


#152

They are not resellers of products except for small companies. They build custom software.


#153

INFY is part of all mutual fund’s bluechip offerings (HDFC, SBI, ICICI, AXIS etc), INFY is cash rich, has generated 35% return in the past 12 months (probably due to management changes), if it can generate atleast half of last year’s return (17.5%), isn’t it still a good investment? With dollar going up and the dollar appreciation yet to reflect in the balance sheet of IT companies, this is a sector with no debt and high ROCE and I believe INFY and TCS can benefit investors atleast for few more years.

From March 2014, INFY’s net profit is as follows (in crore rupees)
10,656 12,372 13,489 14,353 16,029

From March 2014, INFY’s cash from operating activity
9,825 8,353 10,028 11,531 13,218

From March 2014, INFY’s profit from operations
14172 15946 17839 19340 19963


(Ranga Kiran) #154

#155

(Sarabjeet Singh) #156

Q3 Results

Revenue up, good guidance , Net profit down though significantly due to some income tax related expense diff from last year.
Infy ADR up 6 %. Lets see how India mkt treats it on Monday.

Disc : Have a Trading position.


#157

Margins are also down due to one-off expenses, investments and slightly lower utilization.

Stuck to policy of returning 70% of profit to shareholders.

Biggest +ve surprise was strong guidance for next year and double digit topline growth in current Q.

Closing gap with TCS on growth front.

Disc: Invested 5% of PF


(GSApte) #158

Overall, in Q3, Revenue has moved up about 17% y-o-y, which looks better than competition.
Sub-contractor cost n Q3 has zoomed from 1349 to 2037 Crores i.e. 51% up, and hence overall expenses has moved up from 11520 to 14633 crores i.e. 27%.
Both look very high.
It seems that, no. of sub-contractors going up could be main reason apart from revised pay of higher management from October 2018. This could be a long term strategy of the company to have some work force as contractors rather than permanent employees, considering slow business growth in IT sector in near future.

Need to analyze the result further, since OPM reducing from 29% last year to 24% (as per screener), looks a major concern. Many large IT companies have been chasing revenue growth and that has impacted OPM of many of them post 2015. It is an indication of pricing power getting reduced in spite of growth in digital revenues which is a high margin business.

Disc: Invested.


#159

Contractors are required when your growth outpaces planned recruitment. It is never a strategy as it is costly affair but it is better than having to turn down biz.


(GSApte) #160

@nav_1996 : Yes, that is a good point. Since revenue growth seems to be higher than earlier forecast, there might be increase in contractors, which is common in IT industry.

Shrinking margins due to various reasons will remain a concern going forward.