Infosys gets reality check, it's time to buckle up
Infosys Q4 results are out and its lacklustre numbers are a reflection of how the firm is handling itself at the moment. When an industry bellwether squeaks through the finishing line, it is a sign that it might take something akin to a miracle to get it back on track. The question that remains is - Will Infosys get its gait back anytime soon?
Proposed payout too less to appease shareholders
Infosys, post reporting a flat net profit in Q4, promised Rs. 13,000crore payout in dividends/payback or both. Infosys currently pays dividends of up to 50%, which has now been bumped to 70% of post-tax profits of the financial year. As former CFO V. Balakrishnan points out, this payout was "too little" considering the fact that they have "Rs. 40,000 crore on their balance sheet".
Waving the white flag with Venkatesan's inclusion
Murthy may be happy about Ravi Venkatesan joining as the co-chairman, after he lampooned current board decisions, but it should be noted that a co-chairman makes things more complicated at the top. In a more sordid twist to the tale, no specific details were given regarding Venkatesan's role in the company and Sikka said that he was not a part of the decision making.
Vision 2020 is an aspiration poster now?
Sikka had repeatedly spoken about his vision of making Infosys a $20 billion revenue company. In a post-result interview with ET, Sikka seemed to be backtracking on his promise saying that it is more of an aspiration, rather than a realistic goal that he had spoken about and it is what the firm is looking at but will probably not be able to achieve.
Sikka's defense sounds hollow
Sikka said the results were consequences of "unanticipated execution challenges" and "the growth rate is a reflection of the environment in which we are working in." It really seems difficult to digest when a CEO defends his stance by saying "Unanticipated execution challenges and distractions in a seasonally soft quarter affected our overall performance." Murthy might find the word "distractions" in Sikka's speech amusing.
Where does Infosys go from here?
Sikka assured that the company will continue to strive towards excellence and asked investors not to lose patience as even radical changes will take time and eventually organizational hiccups will get sorted. Infosys will also begin to give an account of the revenue garnered from its emerging technologies from Q1FY18, which according to the management has seen a growth rate of 47% in FY17.
Lower-than-expected earnings coupled with bleak forecast plummeted shares
Infosys is now looking at a 6.5-8.5% full-year revenue growth in constant currency terms and 6.1-8.1% in dollar terms. The lower-than-expected earnings in Q4 added with a bleak forecast had an immediate effect on the shares of the second-largest IT services firm and it plummeted 3.86% on BSE settling at Rs. 931.40 and then 3.71% settling at Rs. 932.90 post announcement.
Making peace with H-1B visa policy
An estimated 62% of Infosys's revenue come from North America and in the wake of Trump's H-1B visa policy, the firm now has one more obstacle that it could do without. Sikka aims to overcome this hiccup by having a healthy mix of local and global talents and working "in compliance with regulations". Infosys aims to "bring technology to cross some of these divides."
