Current situation not comparable with 2008 financial crisis- Mr Salil ParekhAniket Khanolkar
Excerpts from an interview of Mr.Salil Parekh,CEO, Infosys with ET Now on 27th April 2020:
Update on the Indian Equity Market:
On Monday Nifty closed 1.4% higher at 9,282. Among the sectoral indices PVT bank (3.0%), IT(2.4%), FIN Services (2.1%) closed higher. None of the sectors close negatively. Britannia (+7.0%), Indusind Bank (+6.6%) and Bajaj Finserv (+6.2%)closed on a positive note. NTPC (-1.1%), HDFC Bank (-0.9%) and M&M (-0.8%) were among the top losers.
- The company doesn’t see any clients in this situation to go bankrupt as there is tremendous amount of fiscal support in the US market.
- There will be some near-term challenges as there are some requests for price cuts and credit extensions. Due to this reason the company has suspended revenue guidance.
- The US government’s massive $2-trillion stimulus is expected to provide liquidity to companies, including banking and financial services that are the biggest outsourcers of IT.
- Infosys gets 31% of its revenue from banking, financial services and insurance (BFSI). Infosys admitted in its recent earnings call that the vertical would be impacted negatively due to lower interest rates, deferred loan payments and low premiums.
- While comparing the current situation with 2008 global financial crisis, he said the current situation has affected everyone every geography, every sector at the same time and in a way nothing from recent experience is equivalent with current situation.
- Speaking on whether clients would look to reduce their dependence on India, particularly for BPM, given the disruptions in these operations because of lockdowns, he said even if there is any impact it will be on the smaller players.
- On-shore 98% of employees are working from home and In India it is 93%, including BPM. Due to the strength which the company has demonstrated many large clients are going to focus on Infosys and some of the smaller players will lose out on that.
- Clients are seeing Infosys as a stable partner with a very strong financial position and with $3.6 billion in cash reserve the company in a stable position.
- He said the company is having discussions with clients on vendor consolidation, on how they want to look at some captives, a lot of discussions in the cloud, movement on virtualization, workforce transformation.
- Speaking about the whistleblower allegations made against the company in October 2019, he said the company is extremely transparent and the management is committed to keep focus on clients, shareholders and employees.
Consensus Estimate: (Source: market screener and Investing.com websites)
- The closing price of Infosys was ₹ 665/- as of 27-April-2020. It traded at 17.7 x/ 15.6x/ 14.3x the consensus earnings per share estimate of ₹ 37.4/42.6/46.3 for FY20E/ FY21E/ FY22E respectively.
- The consensus average target price forInfosys is ₹ 725/- which implies a PE multiple of 15.6x on FY22E EPS of ₹46.3/-.
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