When a major organisation like Infosys is in the throes of major changes, it is difficult to just rely on quarterly numbers to get the drift. Indeed, it may even be misleading. The Bangalore-based software bellwether that became the first Indian company to list on the Nasdaq in 1999 is going through a triple disruption, each of which will tell on its top and bottomlines in the coming quarters and years.
The company’s stock was down 3% in afternoon trade after spurting in early trade. The immediate concern is over growth guidance for the full fiscal year in US dollar terms to 6.4%-8.4% from 7.2%-9.2% attributed to uncertainty over some accounts, even as constant currency guidance remained stable.
Overall, Infosys beat market expectations on Monday in its second-quarter results, with some key numbers showing much-awaited improvements. Yet, the muted dollar guidance made its stock yo-yo, leaving questions to be answered--clues to which may lie in fundamental disruptions.
The first disruption is in leadership. The exit of Chief Financial Officer Rajiv Bansal can be seen as only the latest in a slow-motion shake-up in which company veterans including its co-founder N.R. Narayana Murthy have relinquished responsibility and made way for the hand-picked men of CEO Vishal Sikka. Bansal is a veteran who joined Infosys in 1999 - the year of its US listing - and was named for the top finance job in October 2012 in the middle of a tumult that saw the gradual exit of its long-term finance head V. Balakrishnan. No reasons have been given for Bansal’s resignation, but the official words are warm enough to signal a transition than a conflict. But transitions take time.
The second disruption Infosys is facing is in global economic forces. Infosys revenues from Europe have grown 8.3% on the quarter, and this is impressive, given that Europe is the developed world’s most shaky economic zone amid a global uncertainty over recovery. But currency management is critical for the company that is sitting on Rs. 32,099 crore in cash--nearly $5 billion. It is a challenge because Infosys has been picky on acquisitions while having a policy not to invest in non-core businesses.
The third disruption that Infosys is facing is in technology--where a threat conceals opportunity. For nearly two decades, Infosys thrived on the idea of being a “branded services” player in offshore operations. But it has lost that advantage as all rivals expand in India, and project-based work shifts to new technologies such as cloud computing. The only way to stand out in such an atmosphere is innovation--and here’s where Sikka brings a personal edge. But this involves high capital outlays and longer gestation. Markets may get impatient while that happens.
It is significant that Infosys has hired its new human resource head, Krish Shankar, from Philips. Sikka’s “new and renew” mantra includes artificial intelligence as a critical component. Philips has been active in Bangalore for nearly 20 years, hiring PhDs and doing advanced innovations in hardware, software and electronics in the very city where Infosys was playing the volume game--more hires, more demand, more profit.