There's Value in Infosys' Industry Position
We would recommend the stock to investors seeking exposure to offshore IT services.
Infosys (INFY) is one of India’s top providers of information technology services. The company has suffered from its slow-moving legacy past, which included smaller, more discretionary projects, and an out-of-date go-to-market strategy, resulting in low revenue growth relative to peers, margin compression, leadership churn, and high employee attrition. In light of these issues, Infosys has launched a number of initiatives to improve its performance. The company has some way to go before rectifying its position, but a number of signs are promising, with revenue growth, margins, client mining, and employee attrition improving. The appointment of well-respected CEO Vishal Sikka has also reinvigorated the company’s morale and strategic direction.
Infosys benefits from high switching costs, thanks to its commitment to building lasting client relationships, embedded systems and processes, and intimate knowledge of clients’ IT infrastructure. Such switching costs ensure a certain level of operational consistency, and the company’s good financial health reflects this. As a result, Infosys will look to leverage its financial stability and increase its top line while improving its competitive performance relative to peers such as Wipro (WIT) and Tata Consultancy Services (TCS).
Andrew Lange does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.