The country’s second largest software services, Infosys, is looking to eschew its conservative image and plans to go out and buy a few companies, largely in the digital space, though it is also open to considering acquisitions in the traditional services.
In an interaction with CNBC-TV18’s Kritika Saxena, CEO Vishal Sikka, COO UB Pravin Rao and CFO Rajiv Bansal stressed upon the fact that the company was keenly focused on the realigning its business, focusing on automation, more acquisitions and more prudent use of its vast cash reserves.
Infosys today declared fourth-quarter earnings that were below analyst estimates. The upside was the company said it laid out a positive guidance for FY16 and said it hoped to come back to industry-leading growth by FY17 in what would be the first time in several years.
The management told CNBC-TV18 it had shelved plans to initiate a buyback after exploring the option – a demand raised last year by former top executives who continue to hold the stock -- signaling its intent to use cash for purposes such as acquisitions.
Going forward, the company expects to maintain margins in the 24-26 percent range, and said it was “thrilled” with its attrition levels finally falling back from elevated to normal industry levels in this quarter.
Below is the transcript of the interview on CNBC-TV18.
Q: The weather seems to be cheering your numbers, there is a thunder storm outside.I will go into this quarter a bit but for the full year you have guided for a fairly good set of growth given the kind of outlook that we have been seeing in the last one year and you also said and I picked up on that in the concall that FY17 will be the time when you will be able to reach industry leading growth rate. What gives you the that confidence to be able to reach industry leading growth rate again by FY17 keeping in mind pricing pressure, keeping in mind volatility that you are seeing, evident volatility in you existing businesses?
Sikka: We do see volatility obviously but my sense is that the underlying fundamentals, the need for innovation, the need for real operational efficiency using the best available techniques is something that is kind of a timeless thing and so we do see tremendous need for that. So, what we are doing is we are reshaping our own business along this new direction that we have talked about where we are taking all of our existing services, our traditional services and transforming those using the power of automation, artificial intelligence, techniques like that as well as bringing more and more operational efficiency into these.
We are starting to see the first results of that and then in parallel to that transformation to the existing businesses we are also bringing completely new kinds of things that we never did before like bringing this information platform for more complex and next generation big data problems, data science problems, AI work, the work on design thinking to help clients identify their next generation problems and finding solutions to those and those things under a much higher margin, higher value kind of things.
Q: The constant currency growth for the next year or the projection is strong yes, but for this year currently has played spoilsport. What were the key pressure points that affected numbers because numbers have been disappointing if you see the street estimates? Was currency the only area where you got hit or were there pressures across the board with respect to pricing and with respect to telecom, energy as well?
Bansal: Currency was known. Everybody expected currency to impact our growth during the quarter and that was already factored by us in the markets. In action that we had pressures on certain verticals like energy vertical or oil because of oil prices, we had pressures on some of the ramp downs that we had because of certain client issues. So, overall if you look at this quarter even on a constant currency basis we have a sequential decline and that is a problem.
The volumes were lower than what we had expected as Pravin was mentioning in earlier call. Volume growth has been lowest in the last four or five quarters and that is a little bit of worry but seeing the pipeline, as Vishal was saying we have put our detailed plans, together we have looked at our pipeline we feel confident of the guidance that we have given and we will have to deliver on that one.
Q: So for FY16 operating what is the comfortable thing that you have in mind. Are you still sticking with 24-26 or could it be higher?
Bansal: We want to keep the margin band as what we had given earlier. So, the cross currencies have impacted by about 100 bps but we believe that we should be able to deliver a margin of 25 percent plus or minus one percent for the next year.
Q: Pravin, attrition at 13.4 percent. Significant! I think the quarter before Vishal came on board you indicated 13-14 is your comfortable range. Going ahead what are the other employee retention programmes that you are looking at? And of course now with wage hike would you be able to bring this down further?
Rao: This is where, as I said earlier in this industry, given the dynamics and other things, this is where typically it tents up. You may see a little bit of spike in quarter because traditionally we have people leaving for higher studies and so on. But we have come back to where we want to be and we have taken our initiative and obviously these are not one off initiatives these are some things you need to sustain.
We continue to focus lot more on employee engagement. We are focusing lot more on skilling employees. We have, already as Vishal pointed out, we have embraced designed thinking in a big way. More than 25,000 people have been trained on designed thinking and so on. We have given a comp correction. We did comp correction middle of last year. We have given a comp hike. Our variable pay has increases from 64 percent to about 84 or 85 percent that too for 100 percent payout and so on.
We have done many things well and we need to continue that. I mean these are not one-off initiatives, we need to continue to focus on employees and continue to help them in building, continue to give them opportunities for growth, reduce dependence on external hiring. Give more opportunities for internal people and so on. If we continue to do well, we are very confident that we should be able to sustain. There will be quarterly blips here and there based on the situation and the quarterly seasonality. But otherwise we are comfortable and we are very happy that we have reached where we are today.
Q: Vishal did speak about the Renew and use strategy and that has been the focus. But would there or is there room for a realignment of vertical and a restructuring of your current business?
Rao: We have already done that. Earlier we had segments which are probably what you call delivery as well. Now we have separate out the sales because delivery was fragmented. So effective April, we have delivery which is more organised than the service lines. The service lines that I talk about digital, infrastructure and so on. But as sales of steel continue to be vertically based and they continue to focus on customer. So, we have done that realignment. Now sales are more bandwidth to spend in the market driving growth and so on. And we can bring in, given that we have horizontalised delivery, we can focus more on innovation, institutionalising innovation and so on. So, restructure is already done.
Q: Two bonus issues that is definitely a kick start and a benefit for employees but there has been talk of a buy back since a very long time. Is it still around the corner or is that what you call a speculation?
Bansal: Bonus is for shareholders so there is no two bonuses for employees. I wish I could give to all of them too. Buy back we did consider it a part of our capital allocation and the cash employment strategy but given where we are today in terms of the returns are being get on our income. The buy back was considered but not taken up.
Q: So, that is out of the picture completely.
Bansal: No, as Vishal said, there is nothing called. Never say no, but the fact is that as time goes by if we keep evaluating it and we see that it makes sense, we will do it.
Q: Your capital allocation programme in that case FY17 is your aim next one year going to be very busy. Are you going to set aside capital when it comes to merger and acquisition when it comes to, of course even employee retention programme, restructuring programme and can you break this up for us?
Sikka: We do not have the break up as Rajiv said, so far we have increased the dividend and the bonus and that is basically it. We are looking for acquisition, we have already done two small but very nice innovative companies that we believe are deeply aligned with our strategy. We will continue to do things of this nature and if something big comes along to acquire you never say never to that again.
And you never say never to other allocation strategies for capital. But for now we feel comfortable with what we have done and where we are going and you are right it is going to be a busy year and we are looking forward to some amazing innovation. Actually next week is our confluence event and we are looking forward to showing more substantively what a next generation services company is really all about.
Q: Are you only focussed on digital companies for acquisition or would you look at traditional firms as well?
Sikka: If there is a traditional firm that really excites us why not, but as of now there is nothing. What we have seen recently and also in the announcements of other companies you can clearly see that there is a fundamental structural transition that is going on in the industry. There is a tremendous pricing pressure and so forth. So, our eyes are set towards the future and not towards the past.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
