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'BBB' rating on Infosys affirmed; Outlook revised to stable
Standard & Poor's Ratings Services today revised its rating outlook on India's Infosys Technologies Ltd. (Infosys) to stable from positive. At the same time, Standard & Poor's affirmed its 'BBB' long-term corporate credit rating on Infosys
Standard & Poor's Ratings Services today revised its rating outlook on India's Infosys Technologies Ltd. (Infosys) to stable from positive. At the same time, Standard & Poor's affirmed its 'BBB' long-term corporate credit rating on Infosys. The outlook revision reflects the deteriorating global economic conditions, which have now adversely affected demand in the non-financial sector; the demand was earlier expected to offset the challenges already being faced by the largest industry segment--financial services. The global downturn has also somewhat offset the benefits of improved geographical diversification achieved by Infosys through reduced dependence on the U.S.
Infosys is the second-largest India-based IT service provider. "The current weak market conditions have also adversely affected Infosys' pricing and employee utilization," said Standard & Poor's credit analyst Mehul Sukkawala. In addition, new projects have slowed, and some existing projects could be scaled down. However, these negative developments have been small scale and the impact on Infosys' cash flows has been limited. Nevertheless, there could be further pressure if the operating environment deteriorates. "The rating on Infosys continues to be supported by superior cost efficiency with a high quality workforce based in low-cost countries, particularly India," Mr. Sukkawala said. Also, the company has developed strong global delivery capabilities led by experienced management. This is expected to enable the company to continue registering above-average EBITDA margin, although it remains considerably exposed to foreign exchange fluctuations. Infosys, like other India-based IT service providers, is also expected to continue benefiting in the medium to long term from higher outsourcing with increased focus on cost efficiency by companies globally. Infosys' rating is also supported by its conservative financial profile, which we expect to be maintained even during the current adverse business conditions. In addition to being debt free, the company has a consistent track record and strategy of funding its expansions through internal cash flows.
