Infosys Ltd. (INFO), India’s second-largest software exporter, is tapping demand from U.S. President Barack Obama’s push to overhaul the nation’s health-care system to include an additional 30 million Americans.
The Bangalore-based company has won four state contracts, one valued at more than $100 million, and is vying for business in four more before a 2014 deadline to build online exchanges that will link customers to insurance plans, said Ashok Vemuri, the head of the company’s unit in the Americas. Obama plans to expand medical coverage through the Affordable Care Act, which includes setting up marketplaces where consumers can evaluate and select service providers.
Obama’s demand to build the exchanges and maintain electronic health records may help Infosys and rivals including Accenture Plc (ACN:US) counter slowing business from banks and factories. Spending on health care may exceed that for defense and social security by 2015, according to Christopher Flavelle, an analyst at Bloomberg Government. U.S. states governed by Obama’s Democratic Party could lead the change, Vemuri said.
“The U.S. government is cutting defense spending and increasing health care expenditures, which is of great benefit to us,” Vemuri said in an interview. Governors of Democratic states, such as Illinois, may “take some initiative,” he said.
The exchanges are designed to allow consumers who don’t have medical coverage from their employers to easily compare health plans and then buy insurance online and through telephone services. The marketplace will help the federal government subsidize the cost for those who can’t afford coverage while increasing the number of Americans who qualify for health insurance.
“The biggest challenge facing the states in 2013 is information technology,” PricewaterhouseCoopers said in a report this month. “Many are overhauling their existing Medicaid eligibility systems and designing an exchange infrastructure to create a single, seamless entry point.”
Infosys is following Cognizant Technology Solutions Corp. (CTSH:US) and HCL Technologies Ltd. (HCLT), founded by billionaire Shiv Nadar, in seeking customers in the segment as the European debt crisis and a sputtering economy in the U.S. prompt banks to slow spending on information technology. The World Bank yesterday cut its global growth forecast for this year as austerity measures, high unemployment and low business confidence weigh on economies in developed nations.
Cognizant earned 25 percent of its revenue from writing code for drugmakers and state agencies in the quarter ended Sept. 30, while the industry accounted for 11.9 percent of HCL’s revenue in the three months ended Dec. 31. Banks and finance companies made up 35 percent of Infosys’ sales in the three months ended Dec. 31, while health care was 1.5 percent.
Not ‘Fast Enough’
“Infosys just haven’t been fast enough to tap the health- care industry, which is why their share of revenue is so low,” said Harit Shah, an analyst with Mumbai-based Nirmal Bang Institutional Equities. Banking, financial services and insurance “has become a mature vertical, posting just incremental growth. The IT firms will fill that void with energy utilities, retail and, of course, health care contracts,” he said.
Infosys on Jan. 11 said net income was 23.7 billion rupees ($432 million) in the third quarter, little changed from a year earlier. That surpassed the 22.4 billion-rupee median of 42 analyst estimates compiled by Bloomberg.
The company’s shares surged by a record 17 percent on Jan. 11 after it raised its full-year sales forecast. They gained 1.1 percent to 2,797.95.2 rupees in Mumbai after declining 16 percent last year. The benchmark BSE India Sensitive Index (SENSEX) rose 26 percent in 2012.
Obama’s stand against outsourcing, promising a ban on tax breaks for American companies that move jobs overseas, may prompt states to find software providers based in the U.S. In 2010, former Ohio Governor Ted Strickland banned state agencies from purchasing outsourced services.
After Governor John Kasich took office in 2011, he continued the policy while allowing for a waiver application if the only way to obtain the services is from outside the U.S., Kasich spokesman Rob Nichols said in a telephone interview.
“From a policy standpoint, you want a quality product that’s easy to use,” said Ezekiel Emanuel, a former White House health-care policy adviser and one of the architects of the Affordable Care Act. “An issue as important as health care is no place to get caught up in the politics of outsourcing.”
The president’s rhetoric on outsourcing may not deter companies seeking to tap insurers and states for business that Technology Holdings forecasts will expand 9 percent a year to $15 billion by 2016.
Infosys, started by seven people including Chief Executive Officer S.D. Shibulal with $250 borrowed from their wives in 1981, is vying with Cognizant, Xerox Corp. (XRX:US) and two rivals to help the state of Illinois, the country’s fifth-biggest, build an exchange that Governor Pat Quinn predicts will serve 1 million people by 2016, spokesman Mike Claffey said in an e- mail. The marketplace would commence operation in 2015, pending legislative approval, he said.
States will also need help to run and maintain the exchanges, according to PricewaterhouseCoopers. The marketplaces may become “self sustaining” only after two to three years, Infosys wrote in a 2010 request for comment from Illinois.
“Health care is absolutely going to be a huge growth area for Indian outsourcers including Infosys,” Tata Consultancy Services Ltd. (TCS) and Wipro Ltd. (WPRO), said Vivek Subramanyam, managing director of Mumbai-based Technology Holdings, which advises companies on mergers & acquisitions. While Infosys trails behind companies like Cognizant, “the industry is going to have a lot of money to go around in the near future,” he said.
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