INFY’s December 2013 quarterly report demonstrates that Murthy’s back-to-basics strategy is starting to show fruit with Infosys upping its guidance for both revenue and earnings. Its year-over-year revenue growth of 9.8 percent is encouraging; however, when we compare it to the performance of industry leaders TCS and Cognizant, it is clear that there is still much to do. Put another way, the faster growth of the industry leaders shows that INFY is still losing market share and is far from out of the woods.
At 9.8 percent, INFY’s growth pace is slower than the market leaders and dramatically far from the growth of Cognizant (21.9 percent) and TCS (17 percent). Why the large gap? INFY’s earnings are a bright spot; but once again, when we look more closely, it’s apparent that rupee appreciation — rather than improved efficiencies — is the biggest factor.
Although it’s good to see Murthy’s turnaround strategies showing early returns, we believe they may be short lived and even shift to a disadvantage over time. Here’s why. Murthy’s strategy focuses on investing more in offshore relationships, especially in the commoditized application outsourcing space. It’s likely to bring short-term financial gains, but we believe this move could result in Infosys losing client intimacy. It’s not likely a winning strategy in the face of competition — especially from the leading duo, Cognizant and TCS, which are investing in enriching their onshore client relationships and their consulting expertise.
Losing market share and profits propped up by currency changes … short-term gains but long-term challenges — with apologies to Robert Frost, Infosys has miles to go before it sleeps.
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