Infosys may move towards flexible pricing, indicates Narayana Murthy:

 

 

Bangalore: Infosys Ltd chairman N.R. Narayana Murthy has conceded that the company may need to sometimes lower prices to win more business and said he is not worried about the recent top-level exits, according to a report from Barclays Equity Research.

Murthy, who returned to the helm of the India’s second largest software exporter in June to revive its fortunes, also indicated that Infosys may replace underperforming sales people with smarter local executives at client locations.

The move towards flexible pricing is a significant departure from the company’s traditional strategy where it would command a premium on pricing.

The company started cutting prices for select clients and partnering with niche firms to drive business volumes, even though it meant squeezing margins, Mint had reported on 2 April.

“Murthy candidly admitted that Infosys’s billing rate premium over peers is unlikely to return as customers are now more focused on near-term cash flows rather than total cost of ownership,” Barclays said in a report dated 26 November.

Infosys will also try paring costs by using sub-contractors less often and reducing the number of senior executives working at client locations, he said.

The results of the cost-cutting is likely to show up in its March quarter earnings.

“Murthy indicated that cost optimization could happen more quickly than the earlier guided period of 21 months with some early results visible by the March 2014 quarter,” Barclays said.

Infosys is not worried about senior executives leaving the firm as it has a strong bench strength. The recent top-level exits include those of Americas head Ashok Vemuri, global sales head Basab Pradhan and energy and resources head Stephen Pratt.

“(Murthy) believes that the company has a full bench of senior managers to fill in any gaps. Second, most of the churn has been of the managers who were either not comfortable with the changed circumstance or for which the company thought that there was limited value addition. There has been only a few exits of people who have left due to higher ambitions,” Barclays said.

Earlier this year, in June, at the company’s annual shareholder meeting, Murthy had sought three years to resuscitate the fortunes of the company and build a “desirable Infosys”. He had said that the company would focus more on winning large outsourcing deals to revive growth.

The strategy was emphasized by chief financial officer Rajiv Bansal earlier in November, where he conceded that the timing of the company’s controversial 3.0 strategy was wrong—an indicator that the strategy would take a backseat for now.

As part of the 3.0 strategy, which was formulated under co-founder and chief executive S.D. Shibulal, Infosys aims to generate a third of total revenues from non-linear areas of technology such as cloud computing and analytics. In an April interview, Shibulal had also conceded that 3.0 was ill-timed.

“Significant cost rationalization measures undertaken post return of Murthy should drive a bigger margin upswing in our view. We believe the huge increase in accrued employee compensation in September 2013 has already created a margin buffer for upcoming quarters,” said analyst Nimish Joshi of CLSA India in a note dated 22 November.

“Near-term challenge to revenue comes from seasonality and adverse impact of top management re-shuffle.”
PRATIMA KUMARI.
PGDM 1st yr
date: nov- 27, 2013