The Bengaluru-headquartered IT services exporter has highlighted the pandemic could be a major risk going forward as key clients across the US, Europe and other prominent markets may cut costs due to prolonged economic impact.
“Our profitability may be negatively impacted if we are unable to eliminate fixed or committed costs in line with reduced demand. Additionally, any sudden change in demand may impact utilization in (the) short term thereby impacting margins. Our profitability may be marginally impacted as some clients may dispute some of the existing work-in process that has been recognized by us as unbilled revenues. This in turn can impact our cash flows negatively,” said Infosys in its 20F filed with the US Securities and Exchange Commission.
Infosys has withdrawn its growth guidance for the first time citing uncertainties in clients’ business in the wake of the pandemic.
The company said in the filing that some of the specific “consequent risks related to the occurrence of Covid-19 that have materialized” include delay and suspension of some existing services projects.
“Many of our clients’ business operations have been negatively impacted due to the economic downturn – resulting in postponement, termination, suspension of some ongoing projects with us and/or reduced demand for our services and solutions,” said Infosys.
The Indian tech services major has also cautioned that certain employee benefits may get reduced and onboarding of new employees could be delayed.
“The uncertainty in demand as our clients deal with a prolonged economic impact of Covid-19 may cause us to implement severe cost control measures including reduction in employee bonuses. This could result in increased attrition of employees and/or a higher expenditure on recruitment and subcontracting services, thereby impacting our profitability,” said Infosys, adding that the company’s ‘ability to honor job offers on a timely basis can get impacted’.
Infosys, India’s second largest software services exporter, has also talked about possibilities of a global economic uncertainty impacting the demand for services, comparing it with the financial crisis in 2008.
“Any future global economic uncertainty, arising out of various factors including the Covid-19 pandemic impacting the financial services industry, retail, consumer goods, energy and manufacturing on which we depend for a substantial portion of our annual revenues, may result in the reduction, postponement or consolidation of IT spending, contract terminations, deferrals of projects or delays in purchases by our clients…For instance, the financial services industry was severely impacted by the economic crisis that started in 2008 in the United States,” said the company.
Infosys chief executive officer Salil Parekh’s total remuneration jumped by 27% to $ 6.15 million in the financial year 2019-20, while chief operating officer Pravin Rao saw a 29% rise to nearly $ 2.3 million.
Parekh was granted a significantly higher number of performance-based restricted stock units compared with the corresponding fiscal year and saw a more than 50% rise in value of granted RSUs. His fixed salary has been marginally reduced.