BFSI: Largest vertical of Infosys under duress

If recent reports are to be believed, the largest vertical of Infosys, India’s second largest IT firm vis-à-vis software exports, is under duress. In effect, the BFSI (banking, financial services and insurance) vertical of the company appears to be more and more stressed. While this sector still remains the company’s foremost revenue generator, now queries are coming up regarding whether Infosys is having problems with its revenue stream from the BFSI vertical. This belief has gained ground in the wake of the company’s incredibly astonishing statement on flat revenue management for Q4 on last Thursday.

A recent website report says that in the quarter that ended in December 2011, the BFSI vertical, which comprises about 35.3% of the company's revenues, increased just by 3.4 per cent in succession and 11 per cent year-on-year. According to analysts, this is sluggish compared to the average growth of the company and, to some extent, may be credited to in-house failings. It may be noted that Cognizant surpassed Infosys in BFSI vertical in the June quarter pushing the company founded by Narayana Murthy in the third position. Presently, Tata Consultancy Services (TCS) leads in this sector, while Cognizant is second and Infosys third.

On the contrary, Ashok Vermuri, head of Infosys BFSI vertical had said during the release of the quarterly results for October-December 2011 that company’s performance in this particular sector is still robust and its clients are demanding high value services. He pointed out that many of the large deals secured by Infosys were in the BSFI vertical and asserted that he did not witness any notable drop in the confidence of the clients.

Nevertheless, several experts are wondering if the latest reorganization has had any affect on Infosys’ revenues generated from the BFSI vertical. Lately, the company has segregated its business into four major verticals, BFSI, retail, manufacturing and life sciences in addition to communications and energy utilization and one person has been placed as the head of every sector.

The report quotes Mphasis CFO Ganesh Murthy as commenting in his personal capacity that he favors the ‘two-in-a-box’ method taken up by Cognizant as it separates the vertical P & L accountability between two heads in-charge of delivery and sales. He said that in the instance of Infosys, the sixe of the BFSI is so big that the individual heading the vertical is just about functioning as a CEO. According to Murthy, the focus of Infosys in high value is also performing a role, which is influencing growth in the BFSI domain, since, in difficult times; it makes an effort to fulfill the demands of the clients for operating business services.

Meanwhile, an executive from a competitor company said that, in general, Infosys lacks the cushion of a strong play in the insurance section of the company’s performance in the BFSI sector. According to him, insurance only comprises approximately 7 per cent of Infosys’ revenues, while its business rival Cognizant generates about 27 per cent revenue from this sector (inclusive of health insurance).

Nonetheless not every one of the analysts is completely bearish regarding the prospects of Infosys. Remarks from brokerage houses like Prabhudas Lilladhar and Motilal Oswal suggest that the thorny economic situation as well as the restructuring endeavors of the company continue to play out, resulting in some pains. On the other hand, with a great concentration on sophisticated services, while the economic situation does perk up in the United States, Infosys would be among the fastest to recover in the BFSI domain.