Jul 12, 2012, 10.33 PM IST | Source: CNBC-TV18

Change of guard in IT biz; TCS is new bellwether: Experts

Sudin Apte of Offshore Insights and Partha Iyengar of Gartner discuss, on CNBC-TV18, the change of guard in the IT sector in the backdrop of Infosys declaring results today.

I would say Wipro's results are likely to be closer to TCS than to Infosys

Partha Iyengar



Sudin Apte of Offshore Insights and Partha Iyengar of Gartner discuss, on CNBC-TV18, the change of guard in the IT sector in the backdrop of Infosys declaring results today.

Q: Infosys has decided to hold back on any further quarterly guidance and they have cut full-year guidance to just 5%. Can this be taken as an indication that the situation will only get worse?

Apte: We have been stating that the IT market will grow only by 6-8% for the last six years. For the last five-to-six quarters, it has been clear that Infosys is not on the top of the band of the fastest growing companies in the industry. So, we were expecting Infosys to grow at 5-5.5%.

However, the over 1% shrink in revenues quarter-on-quarter (QoQ), and that over 7% drop in profitability comes as a surprise. I think there was a drop in revenues from financial services as well as Europe.

Another surprise is that quarterly prices have gone down by 3.7%. This means that on one side the company has initiated a discount and on other side, it has not managed to grow, which is surely a concern. Until now, Infosys protected its margin and compromised on growth.

Q: Partha, you clearly believe that this a change of guard in the IT sector? Is TCS the new IT bellwether?

Iyengar: Absolutely. The change of guard has been occurring for the past two-to-three quarters. The change is final and I would go as far as to say that we really should stop calling Infosys the bellwether of the IT industry as it does the IT industry a disservice. I believe that there are many company-specific issues regarding Infosys.

Q: The Infosys CFO that they are not trying to do anything to compromise the pricing, margins, not chasing volumes but what do you see in commentary because volume growth has stayed where it was, pricing pressure has really hurt them?

Apte: Pricing is another concern or pressure for every provider. Clients are in a tough situation, the budgets are very tight. So, clearly clients are not in a mood to pay the prices that they were paying a year ago or six months back.

We consistently see clients asking for discounts and as the competition flares up and some players willing to give discount compared to others, I think there is pressure on discounting which is clearly visible.

Infosys stock price

On April 17, 2014, Infosys closed at Rs 3180.15, up Rs 23.75, or 0.75 percent. The 52-week high of the share was Rs 3847.20 and the 52-week low was Rs 2190.00.

The company's trailing 12-month (TTM) EPS was at Rs 177.52 per share as per the quarter ended March 2014. The stock's price-to-earnings (P/E) ratio was 17.91. The latest book value of the company is Rs 805.47 per share. At current value, the price-to-book value of the company is 3.95.

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