The Covid-19 crisis could have a significant impact on the revenue and profit of information technology (IT) services firm Infosys this year.
The coronavirus crisis-induced economic slowdown has affected its customers, which may result in postponement, termination or suspension of some ongoing projects, the company said in a disclosure to regulatory bodies.
Client requests for price reductions and prolonged payment terms could hurt the Bengaluru-based company’s cash flows and impact its ability to provide dividend to shareholders, it said.
“The financial stability of our clients may get affected or they may file for bankruptcy, jeopardising our ability to collect our account receivables and unbilled revenue. Some of our clients or suppliers have invoked Force Majeure clauses in our contracts with them, negatively impacting our business with limited recourse,” Infosys said in a disclosure first made to US markets regulator Securities and Exchange Commission (SEC).
As employees moved to the work-from-home model amid the pandemic, the company incurred additional costs as it procured and deployed hardware assets, technology infrastructure and data connectivity services, it said. Around the same period, there was also unanticipated expenditure to ensure a safe and hygienic workplace for its staffers, the company added.
Rising insurance cost, volatile currency movements, not being able to travel to conduct marketing events, along with remote work challenges such as productivity loss, potential rise in cybersecurity and data privacy incidents, and client reservations may also have a negative effect on its revenue and profitability, the company said.
Additionally, heightened regional or macro risks, such as an increase in unemployment, protectionism, immigration reform, extended recession in the economy, geopolitical tension and social unrest could affect the firm's operations, it said.
The country’s second largest software exporter also expects an erosion of brand value, as the company had to delay honouring offer letters due to the pandemic.
The prolonged slowdown of economic growth may impair the functioning of its acquired entities and investments, which would curb business momentum and synergies that were expected from those deals, it said.
“We may be unable to recoup the investments that we have made in various instruments due to the impact of prolonged economic downturn with consequential impact on liquidity in the sectors or the geographies in which we have invested,” the company added.
Analysts tracking the sector said the Indian IT services firms are looking at a washout year, with the industry expected to see a decline in revenue for the first time in 40 years.
Infosys expects to see a rise in digitalisation and cloud migration, which could potentially blunt the loss from Covid-19 as more companies adopt the work from home model. However, the longer-than-expected lockdown has pushed the world into recession and impact is now expected to be higher.
The company reported an 8% growth during the last quarter of the previous financial year ending March 2020, but did not provide any guidance for the current financial year.