Though the H1-B visa policy is still unclear, expect US President-elect Donald Trump to be business-friendly in the long term, says Vishal Sikka, MD and CEO of Infosys.
Post the announcement of the third quarter earnings, CNBC-TV18's Rukmini Rao caught up with the management of Infosys and asked them about the company's outlook going ahead along with the plausible impact geo-political scenarios may have on its growth.
Read more: Infosys Q3 net up 3%, cuts FY17 USD revenue guidance to 7.2-7.6%
Pravin Rao, COO of the company, said that they remain positive on the Banking, Financial services and Insurance (BFSI) space and expect the manufacturing vertical to bounceback.
He further said that the retail sector is likely to remain volatile in the days to come.
The company's CFO, MD Ranganath told CNBC-TV18 that rupee depreciation gave a 30 bps advantage in margin terms for Q3 and the management is keeping a close eye on developments pertaining to the H1-B visa issue.
Below is the verbatim transcript of Vishal Sikka, Pravin Rao and MD Ranganath's interview to Rukmini Rao on CNBC-TV18.
Q: Do you think you are closer to achieving the aspirational 2020 goal of USD 20 billion?
Sikka: USD 20 billion is an aspirational target that we have but not only USD 20 billion, also 30 percent margin and 80,000 revenue per employee because we want to elevate the way that we work so that continues to be our aspiration and our endeavour.
As we get closer to it, we more clearly see it, it is going to be a combination of this dual strategy that I talk about of renewing our existing core business through a combination of automation and innovation. So that has been making huge progress. This last quarter we saved 2,650 full time equivalent jobs because of automation and we have seen a very deep and wide ranging adoption of automation. Just yesterday I was watching a session on machine learning adoption in our team through the first machine learning class we did recently. Then with that freed up capacity to become more innovative is something that we are extremely proud of, and you see that in the client satisfaction survey. That renewal will have to be augmented by the new growth and there also we are making huge progress so we have doubled again in Mana adoption quarter-on-quarter. So all three quarters we have doubled and all Mana, Skava and all had their best quarters ever. So it is going to be a combination of this.
Q: United States under Trump -- there is already a lot of negative voice that we are hearing especially on the H1-B visa front. What is it going to be for the Indian IT companies under Trump and especially how much of a worry the H1-B noise currently is for you?
Sikka: I think that we don’t know what the policy is going to be. So it is too early to tell. Depending on the nature of the policy, it can have an impact from small impact to larger impact but longer-term we expect that the administration is going to be a business friendly and innovation friendly administration, an entrepreneurial administration. So therefore, if we continue to focus our attention on delivering value through innovation through helping our clients advance their strategic agenda, helping them achieve cost savings, these other policy things will just take care of themselves. Local hiring is a good idea, we are absolutely committed to that. Since I started, we have been working on this and I am myself a local hire and we are committed to US jobs and to dramatically expanding that and that is a good idea anyways so that the clients can get the best of both -- the local and the global business practices.
Q: You have elevated one of your presidents to Deputy COO post, what is this indicative of and are we looking at more changes coming by especially in the management bandwidth?
Sikka: Ravi has done an extraordinary job in the last two years as the head of delivery and our scale has improved dramatically. When I started our revenue was a little bit more than USD 8 billion, now we just crossed USD 10 billion so with that scale Pravin and I need more bandwidth. When MD Ranganath had set up his finance team, Jayesh is his Deputy CFO similarly we are setting up Ravi as Deputy COO under Pravin Rao and Pravin Rao and I, more than a COO or CEO, it is a very deeply trusted collaborative partnership and we jointly run the company, he is here and I am in the US flying around. So with this we can achieve more bandwidth and scale in our work.
Q: Give us one final word in terms of what you are hearing from the clients in the US, is calendar year 2017 looking to be more positive in 2016?
Sikka: We see a lot of optimism around us, we see a lot of signs of progress but in general, the big change that is happening in the world around us is a technological change. It is the change because of software, because of digital technology. That will only continue to accelerate. That is happening in every industry. So I think all the other seasonal, cyclical things come and go and they affect everybody but it is our ability to address the technological change, the AI led change, the digital change that is going to make a difference for us as a company in the long run and that is what we are focused on.
Q: From where the next wave of growth will come in the next few years?
Rao: This Q3 is seasonally weak quarter, so we should not be reading too much into the growth of each of the verticals. So, going forward looking into the future, we remain confident about BFSI space. This quarter itself despite Royal Bank of Scotland (RBS) headwind and the seasonal weakness on a cost and currency basis, it grew marginally by 0.2 percent. Manufacturing is expected to bounce back and within manufacturing, auto we are seeing good traction. Retail will probably continue to be volatile, we can see ups and downs over the next few quarters. Utility is doing extremely well, it has done in the past. Energy will probably remain soft rest of the year. Then life sciences have done well. Telecom after several quarters of growth we saw some decline, but we expect it to bounce back. So, net-net, barring may be energy and some sub segments within some of the verticals we do expect positive growth in the coming quarters.
Q: In terms of margin expansion want to understand how this has happened and also in terms of pushing your utilisation up what are you working towards?
Ranganath: In this quarter the operating margin expanded, the net margin expanded. Operating cash flow was healthy. If you look at the margins for example, the rupee depreciation gave us 30 basis points advantage that was offset by the cross currency, we had the higher leave utilisation, it gave us certain advantage. Then there were other factors like higher CSR etc, overall l20 basis points expansion.
The good thing is, if you look at the last seven quarters the utilisation has been consistently higher than 80 percent and nine months of this quarter, this year compared to nine months of last year the operating margin has been steady despite the 1.7 percent price in decline that we saw. Overall, we will continue to focus on these levers that we have for margin expansion.
Q: Also in terms of the changes that might happen with the H1-B visa regulation in the US, in terms of working out those costs are there any decision that has been made at this point in time?
Ranganath: If you look at the proposals, there have been several proposals and some of them are not even new proposals they are the old proposals. They have been under consideration. In what form, which proposal will be finally adopted is too uncertain at this stage. While that is there at the same time, we have continued to hire locally and we are also kind of continue to focus on that.
To answer your question at this point in time there are multiple proposals. Most of them are old proposals of various degree. Some are positive, some are negative, so at this point in time too early to say which one will be adopted in what form typically all of them undergo amendments and things like that; so we are closely monitoring.
Q: In terms of clients spend what are you hearing at this point in time from your clients in the Europe and America?
Rao: Historically, we used to by now get a sense of what the Budgets are but in this year given some of the macro and uncertainties, clients are all in wait and watch mode. We will get some sense in the coming quarter. Having said that in the last couple of years when we have seen lot of volatility and macro kind of thing in some sense Budget has lost its relevance because even when someone ask Budget on quarterly basis they change the Budgets based on the context and so on. So, to that extent reliance on Budget which was historically very strong is no longer true.
The only thing that is very certain is across the board, across industries, across geographies everyone is focusing on cutting cost, improving their operational efficiency and repurposing that cost saving into newer areas like digital analytics and so on . That is common across this one. However, Budget thing will probably vary from quarter-on-quarter.
Q: In terms of pricing pressure, do you see that continuing going into the next quarters as well?
Rao: As we have said, in one part of the business and business and IT services, it is continuous trend and there is a clear expectation that you have to use technology automation and improve and drive more efficiencies and so on. So, clients are definitely looking at cutting cost there and re-purposing the spend into other areas. So, given that environment, we continue to expect pressure on that part of the business. However, we are hoping to counter as we have done through some of the traditional levers as well as through our investment in automation and so on.