Infosys Q2: Why is CFO Balakrishnan changing roles?

It reported a net profit of Rs 2,369 crore in July-September quarter, up 24% year-on-year (3.5% quarter-on-quarter), while quarterly revenue rose 21% from a year ago (2.5% sequentially) to Rs 9,858 crore.

In an interview to CNBC-TV18, Infosys management- SD Shibulal, managing director and chairman and managing director, V Balakrishnan, chief executive officer, and Rajiv Bansal, vice president- finance (new CFO designate) spoke about the performance of the company and the road ahead.

Also Read: Is Infosys grooming CFO Balakrishnan for the top job?

Below is the edited transcript of the interview with CNBC-TV18.

Q: It has come as a bit of a shocker for the market. Why are you stepping down as a CFO?

Balakrishnan: It’s not a shocker. We have a tradition of giving way to youngsters. Rajiv is great guy. He is young. He has to find his day in the sun, so I am stepping down from that role, but I will be handling the other portfolio like India Business, Finacle and BPO. It is a tradition in Infosys and we are continuing with the tradition.

Q: Why was this reallocation required because Balakrishnan has been the CFO for a long time? He is the face for the market as well. Why did you need to do this reallocation of role?

Shibulal: Bala has been handling a very large business portfolio, which is going very well for us. For example, if you look at business process outsourcing (BPO) in this company, in this year when we are talking about at least 5 percent growth the BPO will be going 18 percent. India, if you look at this quarter, they have closed fantastic deals. He has been handling a business portfolio and a CFO’s role.

This is very much inline with our tradition. We have always given opportunity to the youngsters in this organization. This is a very young organization. He has done a fabulous job of being the CFO for the last many years. He has done a fabulous job of mentoring Rajiv. Rajiv has been with him for the last seven years and Rajiv has been groomed for this role. In tradition with what we have done in the past, giving opportunity to youngsters, Bala has handed over the responsibility to Rajiv.

Q: But these businesses, which Balakrishnan is going to look after now, don’t account for a very significant portion of Infosys revenue. Is it a step down for him?

Shibulal: It is a very strategic part of Infosys revenue. If you look at BPO, it is growing much faster than Infosys’ average. If you look at India, we have entered India only in the last four-five years. We are seeing very good traction, very different kind of business.

The kind of business, which we do in India, is very system integration oriented. A lot of government work. Finacle is very much in line with 3.0 strategy. The 3.0 strategy is all about increasing products and platform space. So, the portfolio, which Balakrishnan is handling, is very strategic for Infosys.

Q: Is it going to be challenging as a CFO, EBIT margins have slipped quite a bit in current quarter and will probably be more under pressure as you take more wage hikes during the course of the year?

Bansal: It is a dream of every financial professional in this country to become CFO of Infosys. I would like to thank the board for giving me this opportunity and trusting me. It is not easy to step into Balakrishnan’s shoes. He has been a role model and inspiration to all of us for years. He has guided us, supported us and taught us what we do.

These are challenging times for the company and the industry. We are going through a transformational journey now where we have defined our strategy. I believe that the right strategy for the company is to create a sustainable, superlative growth at industry leading margins. We have challenges. But we have to be focused on our long-term strategy and do the right things to ensure that it is a sustainable model.

I am not too worried about looking at numbers on quarter to quarter basis and get worried about a drop, 50-100 basis on quarter basis. But as long as we are focused on our long-term strategy and we believe it is the right strategy and we are making the right investments, I think that would matter. We have to cater an organisation that will sustain for a longer time at industry leading margins.

Q: The guidance that you are holding out, 5 percent, does not include Lodestone, right?

Shibulal: We have had a decent quarter in a very tough time. Our revenues grew by 2.6 percent QoQ, Rs 1,797 crore. We had good client additions. We added 39 new clients this quarter, 14 of them in financial services. Even in a very tough period, financial services revenue has grown for us. I have talked about the Indiabulls and the Ministry of Corporate Affairs. We closed six large deals this quarter, two of them were more than USD 200 million, eight transformational programmes. If you look at the Harley-Davidson deal, which we announced, it is an infrastructure led deal. We have set-up an office in Milwaukee to actually takeover that deal. So, it is an infrastructure led deal.

Consulting revenue has gone up this quarter. It has gone back to 30.01 percent. So, it is decent growth, but in a tough environment. The environment continues to be quite challenging. In my mind, between the beginning of last quarter and today, the environment has not improved. Actually it is exactly where it is. That is impacting our clients’ ability to take decisions, invest for the long-term.

But we are very confident of the future. We are investing. So, we are making investments into products and platforms. We have taken the decision to give compensation hike in a very-very tough situation; an average of 6 percent offshore and an average of 2-3 percent on onsite. The offshore is effective right now and onsite will be effective next quarter. So, we have taken that decision. That means that we are very confident of our future.

Our strategy is working. We are in execution. We have a decent set of results this quarter. We are very confident about the future. We are investing. We are investing into our employees. We are investing into intellectual property. We are investing into our client relationships.

Q: Does it include Lodestone?

Shibulal: It does not include Lodestone. While we have announced, it is not closed. We were waiting for the anti-trust clearance from Germany. It has now come. So, we will close it in the next week or so. Next quarter, we will include it.