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 ongoing projects.
The company also said some of the clients had sought price reductions or discounts.
Covid impact
“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,” 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.
It also said the financial stability of its clients may get affected or they may file for bankruptcy, jeopardising its ability to collect the dues and unbilled revenue. “Clients may invoke contractual clauses and/or levy penalties if we are unable to meet project quality, productivity and schedule service level agreements due to our employees working remotely,” the report said.
Regular clients
Infosys earns a significant portion of its revenues from a limited number of clients. In fiscal 2020, its largest client accounted for 3.1 per cent of its total revenues, and its 10 largest clients together accounted for 19.2 per cent of its total revenues. For fiscal 2020, 2019 and 2018, 97.5 per cent, 97.3 per cent and 98.5 per cent, respectively, of the company’s revenues came from repeat business.
Its capex too 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. These commitments included $104 million in domestic purchases and $76 million in overseas commitments. The company’s cash and cash equivalent went down to $2.46 billion in FY20 from $2.82 billion during the previous year.
Impact on productivity
The company said the productivity of its employees may be negatively impacted by isolated remote working from home, quarantine requirements, negative social sentiment and personal anxiety.
It also pointed out that the company could be subject to lawsuits from its employees alleging exposure to health risks “as we transition them back to working from the clients.”
Infosys’ brand might be negatively impacted if the offers already made to candidates are not honoured on time.
Uncertainty ahead
“Instability and uneven growth in the global economy has had an adverse impact on the growth of the IT industry in the past and may continue to impact the future. This instability also impacts our business and results of operations and may continue to do so in the future,” the report said.
The IT services major said that in fiscal 2020, 61.5 per cent, 24.1 per cent and 11.8 per cent of its revenues were derived from projects in North America, Europe and the rest of the world, respectively. In fiscal 2020, it derived 31.5 per cent of its revenues from the financial services and insurance industry.
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