The five-year roadmap laid out by CEO Vishal Sikka is achievable, and will help improve margins, says R Seshasayee, Chairman, Infosys.In an interview with CNBC-TV18, he says there could be hiccups in some quarters, but the long term strategy is in place.He lists hiring and retaining talent as a major problem for the industry in general.On cash utilization, he says idle cash beyond a point is not good for shareholders, and that the company will have to become active on acquisitions.He says the company’s dividend policy will be revisited if the company needs more cash for acquisitions and capex. However, there would be no change in the dividend policy this year, he says.
Below is the transcript of R Seshasayee's interview with Shereen Bhan.Q: Infosys is now a new entity. KV Kamath was perhaps the link between the old and the new, between the founder era and the Sikka era. You, of course, have been on the board of the company - you have served with KV Kamath in the past, but do you think that in a sense this is a break from the past? It is an entirely fresh innings for Infosys?A: I don’t think any organisation can truly breakaway from its past and certainly not an organisation like Infosys, which has got a phenomenal heritage and the past which it should be very proud of. So, there is not even going to be an attempt to break from the past but that said, yes of course it is a new chapter in the same book. It is different because we have no founders now either on the board or in the management and therefore we have a very different paradigm and brings up its own responsibilities, its own opportunities and in that sense, yes it is new.Q: What are we likely to be seeing done differently from a business model perspective? I am sure that Infosys is in the process of putting that new model in place, what specifically is going to be different from the past and also there is a lot of concern on whether the kind of margins that the IT industry has enjoyed so far, the margin picture is likely to be under threat as well? Are the margins that we have seen up until now a thing of the past? Your commentsA: Two things that I would sight as examples of the kind of transformation that business is going to see. One is the issue of interconnectedness. You see today the changes taking place in terms of IOT in terms of 3D printing - they are all getting connected. You have got intelligence everywhere and the new business models are going to happen in say banking. You will see that the physical world and the virtual world are going to get blurred. If I take banking industry, I can’t figure out whether the leadership in payment bank will come out of a software platform, a digital platform or is it going to come out of a traditional bank? Are these services going to be in separate buckets or they are going to get blurred, how will the customer experience the bank now in a virtual world? These are very different kind of a paradigm that we are getting into and it is happening very rapidly in banking.For IT industry to be prepared, to give the right kind of services, the first thing to prepare itself in terms of identifying the opportunities for the client’s business, to be sensitive to the kind of impact the technology will make to the client’s business and its competitiveness. Therefore, I think this brings phenomenal kind of responsibility for the IT industry to gear itself with talent with solutions and be in a position to offer them and open the opportunity gates for the client. That is the reason why Infosys, for example, has been emphasising on renew and the new.The new part is more in relation to getting better productivity, better quality, being more agile and all of this will hopefully translate in terms of not improving margins but at least protecting margins.However in terms of the new part where you are going out and looking at developing new business models for the clients because you are more agile than your competitors or you are in a position to get faster to the place before your competitors - there is a chance and there is clearly an opportunity to improve margins there. This opening up of the new vistas is a process that has to begin now but if you are on the spot now, 10 years from now it opens up, you have got that much more experience, you have got that much more learning and you have got that much more engagement with the clients to be able to walk this opportunity path along with the client.Q: Since you are talking about the new and renew strategy that has been put in place by Vishal Sikka, let me take that point forward. Vishal has articulated the 5-year plan for Infosys. He says the company could be able to achieve USD 20 billion in revenue by 2020. Operating margins could come in at 30 percent within that same period. There is likely to be a significant improvement in employee productivity. Do you feel confident of the 5-year plan as has been articulated by Vishal Sikka. Also there have been some question marks in some quarters on whether it was actually prudent to articulate a 5-year plan, which then ties you down to specific targets?A: Vishal has clarified that these are aspirational goals. I do believe that it is important to have long term goals which are quantified. These are not 20 year goals; these are 5-year goals.
It is important to quantify this in order to bring a sense of purpose and clear visibility of the goalpost for the organisation. Let me say that the board has deliberated on this, the board has had extensive engagement on this with the management and it is fully supportive of the strategies that Vishal Sikka has been articulating to reach these goals. However, I know some doubts are there whether we could rise up to the target, the compound annual growth rate (CAGR) which is 18-19 percent as compared to the last three years but remember one thing that this company has had 34 years history of growing upwards of 20-25 percent. It is a blistering pace that it has set and it has done this consistently over several decades.
However, for three or four quarters if you are going to miss this that doesn't take away the capability of this company to rise ahead and get back the mojo, for example Sachin Tendulkar might have a couple of bad innings but that doesn't take away his talent and leadership. So it is in that contex0t we are going to see this and I certainly think that this is a reachable goal.The kind of initiatives that the leadership has set in motion which are currently showing early results are all reinforcing our belief and our faith that this is an achievable goal and the strategies that we are moving forward to achieve this are sound. Q: In our last conversation with Vishal Sikka he said that quarter is anvolatile animal so do you believe that while in the long-term the strategy has been put in place to be able to achieve the kind of growth numbers that you are looking for or hoping for the aspirational goals that have been set at but in the short-term are we likely to continue to see volatility between quarters? The company has been forced to live with earnings volatility before the Vishal Sikka period started is that a possibility?A: I come from an industry, which has been notoriously cyclical. We are very good at predicting the long-term future but the next month is always an issue. So, that is very characteristic of main part of this business. In that sense you will certainly have some headwinds some tripping up taking place on a quarter to quarter basis, but I think the way that we should begin to judge any industry I would say is to look at the secular trend of the industry of that business.The way to judge any company is in terms of its competitiveness that it demonstrates for the sustainable growth of the company for the future. Quarter to quarter, there could be some tripling. In that sense, we may have a few quarters which don't show the same level of CAGR as is required to reach the vision. However, we have got to look at this on a secular basis.Q: Let me pick up on that point that on mentioned that on a quarter-on-quarter basis the company could be faced with certain headwinds. If I were to ask you today, what are the most significant headwinds that concerns you or the Infosys Board?A: There are couples of things that any IT company will face in the short-term. First one is to do with the availability of the right talent. We would quite often face the situation because of the volatility of the market that certain skills are required in the short-term this month, this quarter. We don't have the bench with those skills and therefore we could probably let go some of these opportunities or not delivering as the discussed that are required in time. These are things which have immediate impact. This has always been an issue with this industry and I can't see this problem going away for many years. That is to do with the fact that the landscape is changing and the skill requirement is changing rapidly.Skill development has its own lead time and therefore this has not happened. We are putting in place number of initiatives to re-skill our workforce, to make sure that our forecasting processes are in shape that we are able to get more definitive kind of a view in terms of what skills are required by who and when in which geographies and so on. So, these will certainly mitigate the problem that is one risk.The second is the fact that you got in these economic cycle and because of the kind of pressures that businesses states, clients states in quarterly earnings the decision to take on a particular initiative for let us say a BPO initiative or initiative for re-designing the system sometimes tend to go from one quarter to another quarter depending on the clients own pressures in their P&L and balance sheet that would pose some problems. However, these are things which will get evened out over an annual cycle.
Q: There has been so much talk over several quarters on what Infosys attempts to do with the cash that it is sitting on. Vishal Sikka has articulated that he would like to do niche acquisitions, he would like to keep a pile of cash for rainy day, there has of course been a lot of talk on whether the board will be in support of buyback plan or not, you have changed or revised your dividend policy recently. What is the thought, what is the philosophy as far as the cash utilisation policy is concerned, what are the options that are on the table, what is the boards thinking?
A: I would accept that the investors have a legitimate right to know what the board is thinking on with regard to the capital allocation. We have recently articulated and hope to have the board to get more specific on this over time, but as I said the broad philosophy of this is that we acknowledge and recognise that idle cash beyond a point is not right from the point of view of the investors' onus and therefore we need to have cash doing better job in the interest of value accretion for the investors.
However, as I said philosophically this would mean that beyond what we currently have, the attempt would be to either have more aggressive dividend policy, which we have already articulated. I am not saying this cast in stone; we can revisit either the dividend payout or using that for good acquisition, where acquisition opportunities present themselves.I will also say here that Infosys will step on the peddle in terms of looking at acquisitions because in this world which is going to demand very unique kind of solutions, we have a number of companies, start-ups, we have number of young companies which are capable of providing those and therefore acquisition will be a relevant strategy to become competitive in this new world. Therefore, we will try and seek out acquisitions to the extent we can but we have to be careful that this is not in any matter disrupt value and third is that beyond dividend payout and acquisitions, we will also need the capex for ensuring that we provide comparative infrastructure for all our people to work and to get right kind of value to the client.
Q: When could we see a decision being taken on the specific issues that you have just articulated, for instance on the dividend policy, are we likely to see you revisit your dividend policy as early as this year because you just recently revised it?
A: We have just articulated the dividend policy and if we find that the acquisition landscape is going to demand more cash or the growth is going to require more cash for infrastructure then correspondingly you will appreciate the dividend policy will have to be calibrated.
I do not see revisiting of the dividend policy at least for this year but we will keep in mind that we will reassess this policy perhaps annually or once in two years to make sure that we are in line with our thinking on the acquisition and the capex.However, the bottomline is that beyond what we have just now by way of cash pile, the board believes that it would not be necessary to add on to the cash pile and we have to make it work better for the growth of the company. Q: Let me ask you about acquisitions since you were talking about that issue. In that five-year plan, Vishal Sikka has articulated that about USD 1.5 billion will come in from mergers and acquisitions (M&A), USD 2 billion will come in from new businesses. If you were to look at the kind of capabilities that you need to build, the kind of opportunities or spaces or niches that Infosys would like to get into, what looks exciting to you at this point in time?A: I think technology. Technology in a very broad sense, the client capture -- it is not so much of getting into new geographies, but technology would be the prime driver and in that again I think as I said earlier, the technology that enables this company to look at this business model that come over to the blurring of the physical and the virtual world doing specific domains wherever that has been enabled by any kind of development by any companies, that would be very interesting acquisition target. For example, what we did in Panaya. It is not so much what Panaya does which is interesting but the horizontal deployment capabilities that we have with a company like Panaya. The forced multiplier in terms of what we can do with the technology to reach out to more clients, to reach out to get better solutions, that would be the important determinant for acquisitions.Q: I would like to revisit the headwind issues that we just spoke about, let me ask you about the regulatory environment and I know you cannot comment specifically on your visa related issues but since you are also the head of the Infosys audit committee, can you share with us, how large a concern the regulatory environment is, the visa regulations are and what Infosys is doing to mitigate this risk?A: Let me answer this in two parts. Firstly, I think we have already said this quite a few times and I will repeat this that a company has a very rigorous process for ensuring compliance. I would like to think that this is perhaps a benchmark practice in the industry. Therefore, we have not an iota of doubt in our minds that we are fully compliant with the regulatory requirements in any geography, in any jurisdiction that we operate in.I think the larger question is about given the fact that there is going to be this huge skill shortage globally particularly with the demographics panning out the way they are in the next decade, mobility even given the fact that this is a virtual world, you don't require physical mobility and you can access virtually any talent, given the fact that you require the skills across the world, physical mobility is going to be very critical. I think it is important that the countries now go beyond their narrow interest of the here and now problems of job creations or job markets to say what is the mobility framework that is required to get talent to come from outside geographies in order to be able to build competitive businesses.Q: One of the concerns that people who have tracked Infosys or who have known the company for a long time have expressed is that Vishal Sikka is based outside of India, he is not at the headquarters and whether this is in the long-term interest of the company, whether he is spending enough time here in India. Has this at all been a concern that the board has taken up in any form or fashion? What is the board’s opinion on this issue? A: Let me say that from a board’s perspective, there are only three things which we need to be accountable for to the shareholders. One is do we have the right leadership and I think we certainly have an extraordinary leader in Vishal Sikka, very appropriate leader for the times. The second thing that we need to be accountable is whether we are giving shareholder value. We are giving growth and the strategies are in place to deliver the shareholder value. As I said earlier, we are fully aligned to the strategy that Vishal Sikka has articulated. The third is governance, are we making sure that we provide the right moral compass for the business to operate in. Beyond that where the leadership sets, how many days that Vishal Sikka clocks in Bangalore are beyond the concern of the board. If we do get into it, it would be completely incorrect because that is not the job of the board. Q: Since we are talking about the growth agenda, in terms of competitive advantages, how closely does the board look at things like market share, transformational deals that are being bagged by your competitors, how closely do you look at the pecking order for instance? What is the mandate from the board to the management on these parameters? A: You know that I come from an industry where we are obsessed with competition; you will talk nothing other than competition. That is because that is the need of the industry. In IT industry, for a long time, opportunities were so immense that we were contained to have a growth target for the business and that came as a result of internal competitive capabilities. Now, we cannot ignore competition. We need to see how do we get the growth rates, not merely by doing things better and therefore capturing new opportunities but also take away market share from our company. So, it is very important. To that extent, the strategies which build competitiveness of the business are critical. To that extent the board has to have an understanding of the strategies. However, let me make this clear, the strategy formulation is management’s job but getting the board to understand the strategy in the context of the environment, in the context of its competitive strengths is very critical. We had recently in the board, we spent quite some time in immersion sessions trying to get a more clinical understanding of the landscape that we are operating in, the competitive merits and demerits that we have, the kind of strategies that are necessary to be put in place for the purpose of sharpening our competitiveness. All of that is very much being discussed with the board and we hope to have immersion sessions continuously because this is a fast changing world, constantly we need to be ensuring that we don’t fall behind in terms of our learning and therefore not give the right kind of support. So, it is a learning process. We have some extraordinary leaders in the board and we are very fortunate to have their guidance and their understanding of the business so closely.
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