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Wednesday, July 11, 2012

Is Infosys in danger of becoming a dinosaur?

Infosys was not a firm,it was a harbinger of India's newly risen clout in the world of business in the 1980s.Yet over the last 4-5 quarters their revenues have dipped,n fresh ideas have emerged and most worryingly with the ageing of the founding partners no one has challenged the established order.

A company famous for challenging the 'established order' is stuck with outsourcing as the main business and the squeeze in margins from Europe and USA has not improved matters.despite all this it still remains a formidable force even after cutting FY13 dollar revenue guidance to 6-8%.Rupee rate assumptions however should drive its FY13 EPS to 176-180.

Macro view however is net negative with IT spending cuts of 15-30% in Europe and US.Infosys is behind peers in market penetration in Latin America where TCS and Wipro have a first mover advantage.The bigger issue is the predictive management style,lack of growth triggers and expected HR attrition.

The expected raise for Infy employees is expected at 8-12% and 30% of bench is not deployed on projects whereas a Wipro or TCS plans to recruit 50,000 new engineers  that shows a strong pipeline.

Sitting on a cashpile of $4.2 billion without organic growth plans or even a dividend for two year it seems clueless as to which direction to take.For longterm investors a range of INR 1800-2000 would be an attractive valuation although with their pedigree an five year horizon should see this stock becoming a multi bagger.Question being,how many are willing to see the bigger picture?