Infosys CEO Vishal Sikka is proud of the revenue growth that has taken place at the IT major since he took office in August 2014.
"When we started, the quarterly revenue was at USD 2.1 billion, This has now jumped to USD 2.65 billion, a growth of USD 550 million," he told CNBC-TV18's Shereen Bhan on his third work anniversary.
Sikka was appointed in chief executive officer and managing director in June 2014 to head the Bengaluru-based IT software giant and took over in August that year.
“What is even more noteworthy is also that we have kept our margin performance very strong while the revenue has grown," he said. "Most importantly, our revenue per employee has grown significantly, which is the true measure of how structurally improved the growth is."
What is also notable is that the company has brought in automation and new software, which did not exist back then. “I am also proud that the software and the new services was about one tenth of the company in Q1," Sikka said.
Infosys’s utilisation went up to 85 percent in first quarter of FY18, its highest in 15 years.
On the issue of multiple executive exits from the company, Sikka said that it was nothing, but “nonsensical myth that has been propagated”. In an internal survey, it was found that Infosys is far lower in executives leaving than many other companies.
On the recent issue of its USD 2 billion buyback plan which has hit a snag due to clearance issues in the US, Sikka said that approval will come soon.
The company will need approval from US market regulator Securities and Exchange Commission, where it holds American Depositary Receipts (ADRs) that constitute nearly 17 percent of the company’s shareholding.
As per norms, if ADR holding is more than 10 percent of a company's share issue then it is required to either seek an exemption from SEC or must launch a buyback for ADRs also.
Below is an excerpt of the interview.
Q: On August 1, 2014 is when you first walked into Infosys. Three years down the line, I am just taking a look at the numbers that we had, in terms of constant currency, FY15 – 7.1 percent, FY16 – 13.3 percent, FY17 – 8.3 –percent. In FY18 your guidance is between 6.5 and 8.5 percent. As you assess the performance of the company since you took over, in hindsight, would there have been things that you would have done differently?
A: Always, of course hindsight is 20/20, but he quarter that I started, we had just over USD 2.1 billion in reported revenue back then. Now we crossed 26.50. That is we have added another USD 550 million or so in the quarterly revenue, more than USD 2 billion in yearly revenue, so that is something I am proud of. What is even more noteworthy is also that we have kept our margin performance very strong while the revenue has grown. And most importantly, our revenue per employee has grown significantly.
As you know, this is the true measure of how structurally improved the growth is, how are we bringing in the automation, the software, the non-linear aspects of the business. And for six quarters in a row, our revenue per employee has gone up. We are now just a little bit short of 52,000. When we started, it was around 50,000 or something like that. All of these are good signs. Our utilisation in the last quarter was 84 percent, that is the highest 15 years.
Including freshers it is the highest ever. And then, if you look at the number of large deals, the number of USD 100 million clients, on every dimension the company has done very well. What I am also proud of is the new software and the new services revenue is now about one tenth of the company in Q1. But if you look at it, these are things that did not exist in April of 2015. That means that in the last two years and one quarter, the USD 2 billion in revenue growth that we have seen, USD 1 billion of that has come from things that did not exit.
Q: Since you talked about margins, let me talk about the margin picture now. Tata Consultancy Services (TCS), earnings before interest and taxes (EBIT) margins at 23.4 percent. For you it is a little over 24 percent.
A: We beat them on margin performance after a long time.
Q: And since you were talking about utilisation as well as being able to squeeze out more revenue per employee, you have maintained your margin band at least when you put out your commentary for this particular quarter. But what can we truly realistically now expect as far as margin performance is concerned in the context of the fact that what is happening in the US. Even today, President Trump supporting a bill which talks about drastic changes to legal immigration. You are hiring significantly more in the US. So what can we realistically then expect about margins going forward?
A: Margins are a function of, in the past, when the IT services companies' model was largely driven by accounts story and the offerings then you see that the margin is based on the downward spiral whereas, my own sense is that increasingly, we have to base our value on next generation offerings on the things that nobody else can deliver. For the foreseeable future, we see this band that we have given, that Ranganath has given, 23-25 percent, we did 24.1 percent in Q1 and our margin guidance is 23-25 percent this year. And that is because of a variety of factors. Currency is one of these.
Q: Since you speak about the currency, today, we have breached 64 to the dollar. So, how much of a headwind is that and how do you deal with something like that?
A: Currency goes up, currency goes down, it does not matter. Our finance team, Ranga does the calculation on what the impact of the revenue part of it is itself as well. So I do not want to comment on that. What was it, in Star Trek, Dr McCoy used to say, "Dammit, I am a doctor, not a bricklayer", so what can I say about currency? Currency will do what currency does. However, the structural part of margin, on what I am working on for the longer term is to move the company towards innovation, move the company towards software, towards new skills and those are all margin things. And by the way, the proof is in the pudding, you can compare us to the rest of the industry.
Q: But you were talking about new services and the new software services that you had launched in 2015 and that amounts to about 8.3 percent currently. So, where is this number likely to be headed given where you find the company today?
A: Way north.
Q: When you say way north, obviously, you base that on the fact that you are seeing enough traction on the ground.
A: What I meant by way north is our expectation obviously is way north and we are seeing strong interest in these offerings. Obviously, these are future oriented offerings and so, our expectation is that the growth rate on these is significantly faster than the growth rate of the company. And that is going to be our endeavour as well. Last quarter was the first quarter that we have reported this. So, we will report it on a quarterly basis now and, that is our endeavour to see that this is growing faster than the company.
Q: Let me ask you about what the acquisition strategy is now likely to be. When you came in, three years ago, the view was that Infosys is finally going to go aggressive as far as acquisitions are concerned. Things have taken a turn. We have seen Ritika Suri move out of the company as well. So are we now given to understand that at least for the foreseeable future acquisitions are on the back burner?
A: No, absolutely not. We want to acquire companies of the future. We do not want to buy the past, we do not want to acquire technologies of the past. This is what I have consistently maintained. We are interested in acquiring skills and capabilities that are future oriented around design, around artificial intelligence (AI) and machine learning, here is the Skytree team that is sitting behind you, Panaya, Skava, the Skava guys are over there.
And similarly, all the next generation areas are the ones we are interested in and there, we have the dual challenge of ensuring that our ability to integrate the business, our ability to find synergies with the business as sort of a spiritual alignment with the company if you will and the purpose of the company. All of this has to be in place and of course, exciting new companies and new areas tend to have higher valuations. So we have to balance that as well. So all of that has slowed down the rate at which we have done acquisitions in the last year or so.
Q: But do you still have the appetite?
Q: And you have the backing of the board as well?
A: Yes, for sure. If you look at the capital allocation policies that we have announced, it sets aside enough for us to do the acquisitions to be able to purposefully grow the business. We do not want to buy revenue shares, we do not want to buy market share, we do not want to buy growth. But we want to buy things that can accelerate our endeavours in certain areas.
Q: You were talking about Ritika.
A: By the way, Ritika was not running mergers and acquisitions (M&A)
Q: Sure, but she is just one of the exits that we have seen over the last few months at Infosys and this seems to have become a cause for concern that you are losing senior talent.
A: Not at all. This is a complete nonsensical myth that has been propagated in some parts.
Q: There are more than half a dozen people who have left.
A: It happens in every company. We actually did an analysis, both in terms of our own past as well as in terms of the other companies in our industry. And there are far more executives who have left every other company that we could think of. Krishnamurthy Shankar, our head of HR just did an analysis of this together with some other recruiting companies and so forth. And we are far lower in terms of executive attrition than other companies.
There is a fixation on Infosys and I appreciate that when individual people including assistants and engineers who have left and they keep showing up in the list. Having said that, when I started you have to remember what the situation was like three years ago when I started. There was a lot of anxiety in the company at that time and a lot of senior executives had left. There was a very young team in place that I inherited.
When you go through a significant transformation like this not everybody makes it through that, that is just the nature of things. The second category is colleagues like Ritika who followed me and they left for a different set of reasons. They came here because of me. Their endeavour was to be a part of the change to contribute, many of them took salary cuts to come here. Change is difficult. I am sad to see them go but it is the price that we pay for going through the transformation that we are going through.
Q: Let me ask you then about the plans specifically as far as the US is concerned. You have outlined a hiring plan of about 10000 odd people, 600 have already come in in Q1. The long term impact as far as business model margins, etc. are concerned and how much more concerned are you getting? Just this morning there is this new bill that has been proposed by two Republican Senators, what finally happens to it is a different story but it has the endorsement of President Trump and it talks about bringing down legal immigration significantly. So, give me a sense of how challenging the environment is getting?
A: In the last one year there has been some additional headwinds because of these things and the atmosphere in the world around us. However I think that our plan to do the hiring is not based on regulatory and policy changes and so forth. It is based on the fundamentally changing nature of work.
Q: One of the things I want to talk to you about is the GST rollout. So, far it has been largely smooth but the real test is going to be when the fillings start to take place and the test will be on August 20 when the first phase kicks off, all set?
A: So far so good, fingers crossed. If you look at the journey so far, we have had quite an extensive usage of the system. I get a daily report.
Q: What are the kind of numbers that we are currently doing?
A: About a million logins per day - 1.2 million logins per day which is not a small number. We have seen peak concurrent users around 30000. So far all the indicators are okay, nothing alarming. It is an incredibly complex system, it is an incredibly large scale system, 30000 concurrent users is a pretty serious number.
Q: At least as far as form 3B is concerned, is everything all set for August 20?
A: Teams are working incredibly hard. In a complex system like this the chances that something will go wrong are 100 percent. There is a very high likelihood that somewhere along the line things will go wrong. Therefore the way you have to optimise this is that you have to make sure that the teams are ready with extremely agile processes to make sure that we can respond to the crisis as quickly as possible and that is the design principle.
Q: Speaking of the environment and we heard you talk about the BFSI space, not as per your expectations largely on account of what we saw happen in the US. Do you now get a sense that perhaps second half is going to be better?
A: Our visibility is getting better. The fact that once the governmental changes happened, the administration change in the US happened, the focus, the priorities went from regulatory oriented spends towards innovation oriented spends. So, you have to respond to that and that response takes some time.
I think banks are clearly looking at spending in some of these new areas and innovative areas, new experiences, new offerings, better performance in trading and so forth. Our team here has put together an incredible game around investing that we have done for one of the BFSI customers.
So, my sense is that things are improving. Our visibility in the second half is somewhat better but that is all reflected in the guidance. We have a very capable team leading BFSI under Mohit Joshi's leadership.
Q: In terms of bringing new people onboard, how soon can we expect some of these positions to be filled up?
A: It is happening constantly. Earlier today I just met three of the folks who just joined us in our digital experience team - senior leader in the digital strategist as well as in sales leadership positions. Inderpreet Sawhney just joined us as our new General Counsel. So, we are constantly hiring new people. However somehow the focus is not on that.
Q: A lot of the focus over the last several months has been on what has been happening outside the operational issues at Infosys. The last interview that Narayana Murthy gave us, he said that he regrets leaving in 2014. As you sit here today, how do you respond to something like that, how do you then start to even move forward when you hear something like that?
A: I don't know what he meant, I don't know the context in which he said what he said, and so, I don't want to second guess that; obviously it is his prerogative. When we started, when KV Kamath became the chairman, Narayana Murthy's last board meeting as chairman was in October and that was my first board meeting as CEO, and then from that point onwards, KV Kamath was the chairman. This was something that we had very consciously established as an independent board and a professional management taking over from a founder led board and a founder led management. So, that is a big change.
It is the nature of our brains that we forget how things were at a certain time and we don't remember the context in which our memories are formed and so on. It was a different time, it was a difficult time for the company at that time and our growth rate was a fraction of the growth rate of the industry, there was very high attrition.
We were talking about attrition earlier and people leaving, the number of title holders, people with AVP or above titles who were leaving in those days was ridiculous. Similarly most of the senior executives either by design or on their own had left. So, there was a tremendous sense of anxiety in the company.
I think three years later we can look back on it and form a different perspective but we should not forget where we are coming from. It has been quite an amazing journey in the last three years.
Q: One of the things that the street is waiting for clarity on and you talked about this when you presented your results is the buy back. You are waiting for the regulatory approvals from the Securities and Exchange Commission (SEC) and that is because the ADR is about 17 percent of the company. What exactly is holding this up? How confident do you feel that you will get in the approvals from the SEC?
A: I feel good about it. We have to comply with the regulatory authorities. This was a case where there were multiple regulations given the local shareholder interest were not aligned with across the agencies.
Q: Is there any indication of the timeline? Can we expect the approvals to come in, say over the next few weeks or perhaps even sooner?
A: I do not know. We have to ask MD Ranganath that, he has been working on it night and day. My sense is that it will happen soon, but I do not want to speculate on that.
Q: You have had a strategy meeting with the board. Is there an alignment with the vision that you have for the company and the vision that the board has for the company? In terms of actionable agenda from hereon, clearly you don't believe that the company will have much of a future if you only focus on run side of the business, which is why the focus and the investment is on the new services. What can we now expect as you start your fourth year here at Infosys?
A: There is a very strong alignment in the board with the strategy that I have laid out. We had a long session on this in July. The elevation of our endeavour, of our effort towards new services, towards software amplified services and towards elevating the relationship towards strategic relationship with clients, this has generally been the commitment in the board that it is an increasingly automation led future and software led future and digital led future. Steve Jobs used to say this that the important thing in life is to remember that everything around us was built by people who are more superior to us. I have been trying to create that atmosphere inside the company without losing the core values of who we are and I feel good about what we have done.
Q: You have had to give up on the 2020 aspiration and target that you had set out for the company. Is there now a new plan or a new target, a new goal that you would like to set?
A: Again looking back at three years, back in October of 2014 when I first said that, it was an aspiration to help the company look at something that we can all get excited about. It was never a financial target. Our guidance and everything, I have done hundreds of meetings with shareholders and investors and it has never been a financial target. It is only last year when somehow my compensation got linked to it, that all this drama started around this. It has never been a financial aspiration.
How the board decides to link my compensation to different targets is upto them. This is not something that I worry about. Many years ago we used to have a goal to get to USD 10 billion by 2010. We have to separate the fact that what is financial aspiration and what is something that you are setting up as an audacious goal for the company from guidance that we provide to the financial markets and so forth. So, these are very independent things.
Q: Given the fact that it has been fairly vicious for the last few months, do you still have the appetite to want to compete?
A: When I talk to the investors and institutional shareholders, there is a very strong sense of support for what we are trying to do because there is no other way. When I look at the future and when you see what is happening in the world around us and then at the AGM we saw a very strong support also from the retail shareholders. As Ravi Venkatesan said recently if there are any voices of decent especially when they come from promoters we listen to them very carefully and we try to address them. In the end I am here to do what I believe is the right thing to do for the company and to do that for all the shareholders, for all the employees, for all of our clients.
I feel good about the atmosphere, the support that I have from the board, as long as I can do that it is good.
Q: Do you feel confident about 2017 being better than the previous year?
A: Yes definitely. Guidance is what we have given 6.5 to 8.5 percent. You have to separate the financial performance and the strategic objectives.
In terms of financial performance the guidance is what we have given 6.5-8.5 percent and we feel good about that for now. If there is any change then we will obviously share that as and when that becomes available.
In terms of being able to transform the company towards the next generation services company without abandoning our core of who we are, I feel much better about that.