Infosys reveals some clients seek price cuts or drop deals

IT major Infosys has said the economic downturn because of the Covid-19 pandemic has forced some of its clients to invoke force majeure clauses while a few others terminated or suspended some of the projects, Hindu BusinessLine reported.
Infosys for technology outsourcingThe Bangalore-based IT services company, which generates majority of revenue from North America, said some of the clients had sought price reductions or discounts. The company did not reveal name of these clients.

Infosys reported revenues of $12.780 billion (+8.3 percent) in fiscal 2019-20 and $3.197 billion (+4.5 percent) for the quarter ended March 31, 2020.

“Many of our clients’ business operations have been impacted due to the economic downturn – resulting in postponement, termination suspension of some projects with us and/or reduced demand for our services and solutions,” Infosys said in its annual report.

The IT services company said a small portion of revenue could not be realised as some projects did not receive consent from clients for the work completed by its employees remotely.

Infosys earns a significant portion of its revenues from a limited number of clients. In fiscal 2020, its largest client accounted for 3.1 percent of its total revenues, and its 10 largest clients together accounted for 19.2 percent of its total revenues. For fiscal 2020, 2019 and 2018, 97.5 percent, 97.3 percent and 98.5 percent, respectively, of the company’s revenues came from repeat business.

Its Capex reduced considerably during the last three years from $465 million in 2018 to $310 million in 2018. As of March 31, 2020, Infosys had contractual commitments of $180 million for capital expenditure. Infosys said these commitments included $104 million in domestic purchases and $76 million in overseas commitments.

Research firm GlobalData on May 10 said clients are either postponing or cancelling major IT projects until they have a better picture of where they stand will bring short-term pain for IT services companies.

“The shift to remote working across all industries may bring some relief for IT services providers, as companies will need support during this transition, but opportunities will still be few and far between,” David Bicknell, principal analyst at GlobalData, said.

GlobalData’s IT services sector scorecard reveals that no companies will enhance their position in IT services over the next year. All IT services companies will have a dismal 2020, where the best-case scenario is that the impact lasts only one or two quarters.

IT services companies face significant issues with remote working, even for those support staff in countries where there is acceptable broadband connectivity. India recently eased its lockdown, with IT services vendors nominally able to function at 50 percent strength on campuses. However, large players like Tata Consultancy Services (TCS) and Infosys are still in no rush to get their staff back to offices.