Infosys Vanguard deal

Infosys Vanguard deal

Last updated: 21 Jul, 2020 | 02:53 pm

Infosys Vanguard deal

Why is this a big deal?

  • While the company has not disclosed the amount, media reports peg the value at $1.5 billion, potentially making it Infosys’ biggest deal till date. The multi-year contract with Vanguard could span over 10 years, and the deal value could further top $2 billion
  • The deal further underscores commentary from various Indian IT service providers that they have been seeing a rapid rise in demand for digitalization across sectors in a post COVID world.
  • 'Infosys has signed multiple digital and workplace transformation deals in the last 10 days including deals with Old National Bank, LANXESS and now Vanguard.'{{tweet1}}

What does this mean for IT services?

  • We reiterate that the Indian IT sector is well placed to take advantage of tailwinds arising from changed business dynamics post COVID. 
  • With immense scale and cost advantages, domestic IT service companies are well entrenched and should see demand increase as the world recovers from Covid.
  • Further evidence in return of business confidence has been from IT firms giving better than expected guidance in their latest quarterly numbers.
  • Although the INR is expected to remain volatile. Significant appreciation in rupee compared to dollar is not expected anytime soon. This would eventually aid the profits of IT sector as the majority of their revenues come from the USA and other foreign countries. The table shows Currency-wise revenues mix for these IT firms.

IND Analysis

  • While Q1FY21 results were expected to be weak for Infosys, the company was able to protect its margins (operating margins were higher by 150bps) and revenue was up by an impressive 1.5% in constant currency terms
  • Large deal wins during the quarter stood at $1.74 billion—higher than the $1.65 billion worth of deals it won in the previous three months. We expect these numbers to grow even further in the coming quarters
  • The company expects revenue to grow between 0-2% in the current FY despite the business disruptions across the globe. It grew 9.8% last FY. 

We are bullish on IT services sector in India and Our VGQM stock analysis model has a BUY rating on Infosys