Investors show 'rare frustration' with Infosys
BS Reporters / Mumbai/ Bangalore Apr 21, 2012, 00:55 IST
Infosys’ continued weak performance has institutional investors worried. In an open letter to the company’s CEO & MD S D Shibulal, brokerage firm, CLSA Asia Pacific Markets, voiced the collective dismay of 100 institutional investors seeking to know the company’s plans to correct the loss of revenues and earnings before interest and tax.
According to the letter, over 600 investors have put $15 billion in the company. Foreign institutional investors hold around 39 per cent in the company. Oppenheimer Developing Markets Fund, Abu Dhabi Investment Authority, the government of Singapore and Aberdeen are some of the prominent foreign institutional investors in Infosys.
The brokerage firm said these investors it spoke to (the 100 investors) after the March quarter result were showing ‘rare frustration’ over Infosys’ recent financial performance, and wanted the company to “articulate a clear policy about the potential usage of over $4-billion cash reserves” that the company has currently.
Infosys, which announced its fourth-quarter numbers earlier this week, missed its March 2012 guidance by 1.9-2.2 per cent. More importantly, its guidance of 8-10 per cent growth in FY13 shocked the Street, as it was lower than industry body Nasscom’s estimate of 11-13 per cent. Post the results, the company lost about 13 per cent ($4 billion) in market value and its shares tumbled to a seven-month low. “The key question on every shareholder’s mind is what is troubling the company, which has been the flag-bearer of the Indian IT industry globally and single-handedly raised the profile of Indian equities among foreign institutional investors. I am just acting as a channel for communicating the consolidated thoughts of institutional investors,” CLSA analyst Nimish Joshi stated in the letter.
When contacted, Infosys CFO V Balakrishnan said the company did not want to comment on any analyst report, as those were personal views. Asked if investors’ frustration was not a matter of concern, he said, “We talk to all our investors all the time. So, if they have any concern, they will tell us.” The CLSA letter also warned the loss of market share may affect Infosys’ ability to garner higher prices for its services over a period of time.
It also questioned Infosys' 'extraordinary ability’ to predict its own business after lowering its outlook twice during last year and finally missing it. Moreover, the massive fall in utilisation for the second consecutive time in the fourth quarter was also worrying, it said.
Stating that clients’ focus remained excessively on cost-cutting, the letter said, “Infosys may not find enough deals which satisfy its threshold pricing criteria. Combine that with the new-found aggression among Infosys’ peers and greater hunger for acquisitions, reasons for the loss of revenue market share become clearer," Joshi said.
The letter says Infosys’ business model is neither capex nor working capital heavy. “Infosys has no doubt been disciplined in usage of cash for potential acquisitions. Given the low capex/working capital needs in IT devices, I do not think a higher dividend payout or buyback will be construed by investors as a precursor to lower growth prospects ahead,” it added.
BS Reporters / Mumbai/ Bangalore Apr 21, 2012, 00:55 IST
Infosys’ continued weak performance has institutional investors worried. In an open letter to the company’s CEO & MD S D Shibulal, brokerage firm, CLSA Asia Pacific Markets, voiced the collective dismay of 100 institutional investors seeking to know the company’s plans to correct the loss of revenues and earnings before interest and tax.
According to the letter, over 600 investors have put $15 billion in the company. Foreign institutional investors hold around 39 per cent in the company. Oppenheimer Developing Markets Fund, Abu Dhabi Investment Authority, the government of Singapore and Aberdeen are some of the prominent foreign institutional investors in Infosys.
The brokerage firm said these investors it spoke to (the 100 investors) after the March quarter result were showing ‘rare frustration’ over Infosys’ recent financial performance, and wanted the company to “articulate a clear policy about the potential usage of over $4-billion cash reserves” that the company has currently.
Infosys, which announced its fourth-quarter numbers earlier this week, missed its March 2012 guidance by 1.9-2.2 per cent. More importantly, its guidance of 8-10 per cent growth in FY13 shocked the Street, as it was lower than industry body Nasscom’s estimate of 11-13 per cent. Post the results, the company lost about 13 per cent ($4 billion) in market value and its shares tumbled to a seven-month low. “The key question on every shareholder’s mind is what is troubling the company, which has been the flag-bearer of the Indian IT industry globally and single-handedly raised the profile of Indian equities among foreign institutional investors. I am just acting as a channel for communicating the consolidated thoughts of institutional investors,” CLSA analyst Nimish Joshi stated in the letter.
When contacted, Infosys CFO V Balakrishnan said the company did not want to comment on any analyst report, as those were personal views. Asked if investors’ frustration was not a matter of concern, he said, “We talk to all our investors all the time. So, if they have any concern, they will tell us.” The CLSA letter also warned the loss of market share may affect Infosys’ ability to garner higher prices for its services over a period of time.
It also questioned Infosys' 'extraordinary ability’ to predict its own business after lowering its outlook twice during last year and finally missing it. Moreover, the massive fall in utilisation for the second consecutive time in the fourth quarter was also worrying, it said.
Stating that clients’ focus remained excessively on cost-cutting, the letter said, “Infosys may not find enough deals which satisfy its threshold pricing criteria. Combine that with the new-found aggression among Infosys’ peers and greater hunger for acquisitions, reasons for the loss of revenue market share become clearer," Joshi said.
The letter says Infosys’ business model is neither capex nor working capital heavy. “Infosys has no doubt been disciplined in usage of cash for potential acquisitions. Given the low capex/working capital needs in IT devices, I do not think a higher dividend payout or buyback will be construed by investors as a precursor to lower growth prospects ahead,” it added.
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