Infy has been out favour on the Nasdaq for quite some time now. Almost till March the stock had been outperforming the technology index but then things changed. We look at what could be the probable concerns that are haunting the company’s valuations.
The Nasdaq seems to have overtaken Infosys in April. Incidentally the company declared its results for FY01 on the 10th of April 2001. Though the numbers were below expectations, what stunned the markets was the fact that Infosys revised its revenues growth projection for FY02 to 30%. However, the case in favour of Infosys is that the management has been very prudent in giving guidance for FY02. Infy is more than likely to beat its own earnings guidance like it did for 1QFY02, keeping to its tradition of “under promising and over delivering”. However, for our projections we have considered the management guidance.
The stock since the 29th of August has lost considerably. The stock price has come down from US$ 58 to US$ 48 yesterday. The latest round of skepticism began with an ad in a local newspaper by Infosys for call centre personnel. This had led to the speculation that the company is entering into the call centre business, which is considered to be at the lower end of the value chain. The concern is that if the company’s realisations and hence margins might come under pressure if it enters into low-value businesses like call centres. To read our research report on Infosys please click here.
However, when asked about this Mr. Nilekani, MD, President and COO denied that the company was getting into the call centre business. He was responding to a query on a business news channel. The recruitment was for remote customer support for its business consulting outsourcing and IT outsourcing practices. It is expected that in future corporates will completely outsource their IT functions to companies like Infosys and will concentrate on their core businesses. Recently, Tata Chemicals outsourced its IT requirements to TCS. To read more please click here. Moves like this benefit software companies because working with their clients very closely would give them a deep insight about the intricacies involved in supporting a particular domain.
On the other hand Wipro has been outperforming the Nasdaq. The company has been very particular about it’s positioning and has declined to compromise on billing rates. For the first 1QFY01 the company managed to negotiate a hike in onsite and offshore billing rates but this came at the cost of volumes. On the other hand Wipro has been strengthening its technology offerings. It recently became the second organisation in the World to have all its profiles qualified for Bluetooth. This gives it the time advantage ahead of others.
While Infosys’s focus will be business consulting, Wipro’s will concentrate on technology. However, the bourses for the time being seem to be reading too much into a newspaper ad.
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