Infosys aiming to steady the ship amid stormy seas, but sizeable challenges still remain

Source:Global Times Published: 2017/4/17 22:03:39

Infosys' cash return is a useful distraction from bigger questions. Boss Vishal Sikka is following his rivals at Tata Consultancy Services (TCS) and HCL Technologies in returning up to $2 billion of the company's unused war chest. The payout will help lift some of the gloom around the Indian IT firm, which has been beset by worries about slowing growth and top-level disagreements.

The return is due this financial year via dividends or buybacks. It equates to roughly one-third of Infosys' cash pile and reflects a shortage of big takeover targets. That should help keep investors onside. They have already done reasonably well since Sikka took charge in August 2014. Total shareholder returns stand at 22 percent, compared to a more or less flat performance at its largest rivals TCS and Wipro.

There would have been little to cheer otherwise in Thursday's results. Infosys gave conservative guidance for between 6.5 and 8.5 percent revenue growth, holding currencies constant, for the year to March 2018, after delivering 8.3 percent in the year just finished. That's disappointing given that India's IT firms have traditionally been leveraged to US corporate profits, which are rising.

At best, Infosys expects operating margins to match roughly the 24.7 percent achieved last year. That will be a challenge given a volatile rupee and uncertainty over work visas in the US - where research house Morningstar estimates 12 percent of the Indian firm's workforce is located. If that wasn't enough, Infosys is also attempting a big shift in its business model, racing against industry commoditization to become more innovative.

An unusual move to promote independent director Ravi Venkatesan as co-chairman may help Infosys focus. The company's founders have publicly criticized Sikka's pay, and severance packages paid to other executives. The concerns seem overblown but Venkatesan, former chairman of Microsoft India, is accustomed to navigating through difficult times. He has done a good job chairing Bank of Baroda - a rare example of a private-sector professional leading a large, state-controlled lender.

Against a challenging backdrop, Infosys' decision to throw cash and talent at investors seems sensible.

The author is Una Galani, a Reuters Breakingviews columnist. The article was first published on Reuters Breakingviews.

Posted in: INSIDER'S EYE

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