The largest vertical for IT major Infosys - banking, financial services and insurance (BFSI) - is increasingly looking under pressure. Though the vertical continues to remain the dominant revenue generator for the company, questions are now arising whether the company is having issues with its BFSI revenue stream. This has gained currency following the very surprising announcement on flat revenue guidance for Q4 made by Infosys on Thursday.
In the December end quarter, the BFSI vertical that contributes 35.3% to the company's revenues, grew by 3.4% sequentially and 11% annually. This is slower than the company average growth and can be attributed to some extent to internal weaknesses, say analysts. In the June quarter Cognizant went past Infosys in BFSI sector leaving it in the third position with the current order being TCS, Cognizant and Infosys.
However the head of the BFSI vertical Ashok Vermuri, during the company's Oct-Dec quarterly results, stated that the BFSI space continues to remain strong and clients are seeking high value services. Some of the large deals won by the company were also in the BFSI space and he was seeing no significant decline in client confidence, he added.
Many wonder if the recent reorganisation has had an impact. Infosys recently divided its business into four large verticals - BFSI, manufacturing, retail and life sciences as well as energy utilities, communications - with one person responsible for each vertical.
"I prefer the two-in-a-box model adopted by Cognizant which divides the vertical P & L responsibility between a delivery and sales leader. In the case of Infosys the BFSI vertical size is so large that the person leading the vertical is almost acting like a CEO," said Ganesh Murthy, CFO of Mphasis. Murthy said that he was commenting on his personal capacity and these were not the views of Mphasis.
Murthy added that the Infosys's focus in high value services is also playing a part in affecting growth in the BFSI space as it struggles to meet client demands for 'run the business services' in difficult times.
An official from a rival company said that Infosys does not have the cushion of a strong play in the insurance pie of its overall BFSI play. Insurance just contributes about 7% of the company's revenues, while for competitor Cognizant (including health insurance) this is about 27%.
Nevertheless not all analysts are totally bearish about Infosys's prospects. Commentary emerging from brokerage houses like Motilal Oswal and Prabhudas Liladhar indicate that the difficult economic environment and the company's restructuring efforts are still playing out, leading to some pains. However, with a large focus on high-end services, when the economic climate does improve in the US, Infosys will be the fastest to bounce back in the BFSI space.
No comments:
Post a Comment