With clients rethinking projects, Infosys flags risks

Bengaluru: Some clients of Infosys have terminated projects or reduced demand for its services amid the Covid-19 induced economic crisis, which could impact its profitability in the year ahead, the Bengaluru-based company said in a filing.

The IT services provider highlighted that the pandemic could pose a major risk going forward as key clients across the United States, Europe and other prominent markets cut costs due to the prolonged economic impact of the outbreak.

“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,” the company said in a filing with the US Securities and Exchange Commission. “Our profitability may be negatively impacted if we are unable to eliminate fixed or committed costs in line with reduced demand,” Infosys added.

In April, Infosys suspended its annual revenue guidance for the first time due to the economic uncertainty, as the United States and Europe waded into a recession, affecting businesses at clients.

The company said that some of the specific “consequent risks related to the occurrence of Covid-19 that have materialised” include delay and suspension of some existing services projects.

“Additionally, any sudden change in demand may impact utilisation 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 recognised by us as unbilled revenues. This in turn can impact our cash flows negatively,” it added.

The company also warned that certain employee benefits may be reduced and onboarding of new employees could be delayed.

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