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Infy: Defying the slowdown.

Mar 15, 2001

Infy once the darling of the bourses, has been the favourite punching bag for quite sometime now. It has been at the receiving end of all apprehensions that have emerged for the minutest of suspicions about its ability to maintain the dazzling performance of the past. It all started with the apprehensions regarding the US slow down and for the first time there was a hold rating given on Infy by a foreign brokerage. Then there were a lot of rumors flying around that severely affected the valuation of Infosys. One of them was the news of Nortel cutting their business to Infosys. The next was that the number of people on the bench at Infy had increased. This was fueled by the fact that Infy did not visit top B-schools for Campus placements this year.

Let take these one by one. If you consider Nortel’s size (around 76,000 employees), the amount of business it outsources to Infosys in quite minute. It would be the last place where it would look to cut business. The question is why? Telecom and networking companies around the world are going through a bad time, but this certainly does not mean that they will cut expenditure in Research and Development (R&D). The cutting edge in the race to dominate their respective fields is innovation. Technology has a long long way to go. To quote the director of computer science at MIT, Mr. Micheal Dertouzous,

"...I keep saying tomorrow because we are nowhere near where we will be? Technology you see around you is 10% of what you will see.. "

The information technology revolution has just begun. There are miles and miles to go. Currently there is a pressing need for voice over the Internet. Networking companies are developing new technologies to meet this kind of demands. The list of such demands is endless.

Infosys not visiting B-Schools, there could be some merit in this, as they did not get a preferred day for the placements. Also, the trend in top business schools indicates IT companies were no longer “hot”. This also seems to have discouraged Infosys from visiting the B-Schools.

  FY00 FY01E FY02E FY03E
Growth rates 73.4% 123.5% 75.0% 70.0%
Operating Margins 39.3% 40.0% 40.0% 40.0%
EPS (Rs) 44 91 155 266
P/E (x) at current price 108 53 31 18

But now for the piece of news that will keep the naysayers quite for sometime. Aetna, a leading provider of healthcare insurance in the US had decided to double its business with Infosys. According to Aetna, it’s taken a decision to outsource more business to Infosys because it had delivered quality business at low costs. Currently, Aetna the fourth largest customer for Infosys, accounts for 2% of Infy’s business and by the year-end the figure is expected to shoot up to 4% (around Rs 706 m).

Currently it seems that the slowdown is working in favour of Infy. If there is a slowdown in the telecom segment of the company it might be offset by increased business in areas like insurance.

Infy has stood for many firsts, which include the best management, best employer and best quality to name a few. It may add one more to its cap by becoming the first company to escape the US economic slowdown unscathed.

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