Coronavirus impact: Infosys revenue growth likely to decline in FY21

Coronavirus impact: Infosys revenue growth likely to decline in FY21

Infosys is likely to post lower revenue growth of around 7 per cent in organic terms in financial year 2020-21 (FY21), compared to FY20 as the spread of coronavirus (COVID-19) is widely expected to pull down the global economy.

The revenue growth number will be around 200 basis points (bps) lower on constant currency basis than the Bengaluru-headquartered firm is expected to post in FY20, said analysts at ICICI Securities based on their interaction with Infosys Chief Financial Officer Nilanjan Roy.

The company has guided for a revenue growth of 10-10.5 per cent in constant currency terms in FY20, of which around 9 per cent is likely to come through the organic route, while the rest is expected to come from acquisitions, especially that of Stater NV.

However, the IT services firm is better-placed to handle the slowdown arising from COVID-19.

“The company’s exposure to markets like Germany and Italy is modest. Management believes that apart from ‘net-new’ discretionary work which can potentially get postponed, impact on existing book from COVID-19 should be limited,” said ICICI Securities. “Work around infra and maintenance is expected to continue even if COVID-19 issues persist,” it added.

Despite severe restriction being imposed on talent mobility because of the virus’ spread, Infosys believed that a major portion of enterprise applications work could be handled remotely from offshore locations like India and wouldn’t require deploying engineers at the client site.

All IT services companies have widened their travel restrictions to include many other nations such as Italy, France, Singapore, South Korea, and Japan. Several of them have even imposed a restriction on non-essential travel to the US, which accounts for 60 per cent of revenues of Indian IT companies.

While travel and automotive sectors have been severely impacted because of the ongoing spread of COVID-19, cancellations of meetings, travel plans and other such business disruptions are likely to pull down global growth in the current year. Analysts have already started factoring in the effect of a global slowdown on the IT spend of companies.

Typically, discretionary spends are instrumental in driving large transformational projects. During a slowdown or uncertain business environment, clients hold back such expenses first, though spends on ongoing research and development (R&D) continue to run the business.

Amidst all the business disruptions and market crashes, there are also silver linings for the IT industry. “There are also opportunities for (the IT industry) as clients evaluate transformational cost saving project initiatives in an accelerated fashion where the speed to market and automation driven cost benefits of India heritage vendors will enable material share gains at the expense of in-house teams,” according to the note.