Some analysts also said that while rebadging of clients' employees and entering into joint ventures with entities for winning business would boost revenue, Infosys might have to compromise on margins in the near term. “Under Parekh's leadership, we have seen a lot of aggression from Infosys in large deals and in the joint venture space. But higher subcontracting costs and rising onshore expenditure, apart from buying out resources from clients for winning business, are margin dilutive," said Pareekh Jain of Pareekh Consulting. Infosys has been aggressively tapping the joint venture route under Parekh in its bid to win contracts from large clients. As part of this initiative, it said last week that it will acquire a 75 per cent stake in Dutch-based ABN AMRO Bank's arm, Stater NV, for $143.15 million.
Similarly, the firm formed similar joint ventures with Hitachi, Panasonic, and Pasona in Japan last year and also entering into partnership with Singapore's state fund Temasek. Infosys invested around $35 million for buying out stakes in these joint venture entities. As part of a $700 million outsourcing deal, it also absorbed close to 2,500 employees of Verizon.
Against this backdrop, Motilal Oswal and Nomura have come up with reports saying that Infosys is likely to cut its operating margin guidance for FY20. While Nomura has pegged it in the 21-23 per cent range, Motilal Oswal sees it at between 21.5- 23 per cent during the next fiscal year.
However, Parekh has clarified that Infosys will not compromise on margins in its pursuit of growth. “We are very clear that we are targeting high margin business. We are never going to sacrifice margin for growth or for anything.”
While the markets await its Q4 announcement scheduled for April 12, many industry watchers said commentary on BFSI and retail would also be critical for gauging the sustainability of its growth.
“Unlike his predecessor Vishal Sikka, Salil Parekh
has put the focus back on the services side of the business and has also stabilised Infosys' operations, despite a few high profile exits. But it is now to be seen whether he is able to give the firm the strategic direction for its next phase of growth," said Jain.