Moneycontrol
Oct 14, 2016 06:17 PM IST | Source: CNBC-TV18

Oil price, Brexit impact tend to be over-stated: Vishal Sikka

The impact of oil prices, Brexit and US presidential elections tend to be over stated, Vishal Sikka says. The bigger issue is the nature of computing and the fact that today everyone wants to be a tech company, he adds.

The long-term structural issues for Infosys include downward pricing pressure and increased competitiveness, says company Managing Director and Chief Executive Officer Vishal Sikka.

The impact of oil prices, Brexit and US presidential elections tend to be over-stated, he says. The bigger issue is the nature of computing and the fact that today everyone wants to be a tech company, he adds.

The company has made its plans to deal with the structural issues, but execution is going to take some time, says Infosys Chief Operating Officer Pravin Rao.

Ranganath MD, Chief Financial Officer, Infosys has given a target to achieve 24-25 percent margins in the current fiscal.

Sikka says the European business of the company will take around 2-3 years to recover.

Below is the transcript of Pravin Rao and Vishal Sikka’s interview to Rukmini Rao on CNBC-TV18.

Rukmini: Was the downward revision in your guidance led by cyclical and structural issues?

Sikka: These are not structural issues. The structural issues that we are seeing in the industry is a long-term one that we have been addressing in a systematic way which is a downward pricing pressure and increased competitiveness in the industry. And that, the commoditisation of services essentially, that is the structural issue. That is something that we know about and we have been addressing for the last two years and actually making great progress on whereas the issues that impact us so far tend to be issues, more tactical ones, near-term ones and pertain to clients, wrap-downs and things like that. So, these are not structural, I would say.

Rukmini: In terms of the global macro environment, I want to understand from you what is your own reading for now? We have seen Brexit happen and also the US election rhetoric. What kind of an incremental effect has it had on any kind of decision making as far as clients go in these regions.

Sikka: We always tend to overstate the impact of these things. Sometimes in some areas, for example oil prices or Brexit or these kind of things can have some impact, but the bigger again structural issue that is impacting all of our clients and every industry is the nature of computing, the nature of digital, every company is slowly in the process of becoming a tech company. Right now we are in an atmosphere where the top-5 largest companies in the world are all technology companies. And yet, we realise that every company is being impacted by technology, by digital. So this is both a massive structural threat and disruption to existing companies, but also an opportunity especially for a company like us which can take advantage of that to deliver great services to our clients. Otherwise, Brexit and these things, we always tend to overemphasise the impact of it.

Rukmini: The last time you spoke to analysts, of course, you were mentioning about the changes that you are making on the consulting side of the businesses. I want to understand how long will this process take to perhaps do the operational changes that is required on the consulting side of the business and also the new structure that you have put in place, how much of an impact is that going to have in the coming quarters and is this going to have any terms of impact on the margins and the operational efficiency of the company?

Sikka: Within consulting, it is not a very large part of our business, but it is an integral part of our business. Rajesh has been doing a great job in the last four months or three months that he has had responsibility for it. It is going to take a while. In the US, it depends again on regions and specifics within that organisation. In the US he has already seen that the results of those changes have been positive and he feel comfortable with what is happening in the North American regions. In Europe, we have a more structural issue, that is the result of the acquisition that we made four years ago, a couple of years before I joined which the company in Lodestone that we had and how we had to transform that towards becoming the tip of our spear and how do we engage that into more design thinking strategic oriented, design oriented consulting and so forth. So those kinds of things are going to take time and what he has told us is another 2-4 quarters is what he will take on the European side and so forth.

Rukmini: Are you on track with your 2020 plan?

Sikka: The 2020 is an aspiration, it is a great aspiration and I remain excited about it.

Adith to Rao: What are the structural challenges that the IT companies and Infosys in general are facing?

Rao: This is something we have been, particularly Vishal Sikka has been saying ever since they came into the industry for a last two years and we have been talking about it and industry is actually reacting to it. Some of the changes, some of the transformations that we have to do for ourselves along with helping our clients will take time. We are seeing that some of the volatility because of that and when you look at commentary from our peers everyone is going through this.

So, in some sense it is a structural change happening, but at the same time we understand what they think and what we need to do. It is now only question of executing the strategy, focusing on it. In the short-term you will have some bumps, but if we are executing the strategy well we should be able to come out of it.

Adith: How much of this is a function of Brexit and the fact that the automation is becoming the buzz word at your client organisation?

Rao: The impact of Brexit is minimal; I mean for us at least it was only Royal Bank of Scotland (RBS) client. We have not seen too much of this one. However, Brexit is one event, there are many events that are happening that brings in uncertainties and delays decision making. That is something we have seen in last couple of years.

Now what is happening also is there is a tremendous pressure on the clients from a cost perspective. There is tremendous focus on cutting the cost on running the business and trying to repurpose the spends on newer areas and so on. That is the pressure that is coming on from a client perspective and which is actually putting lot of pressure.
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