Infosys: Execution rigour is the mantra for the company going forward

The company should be able to hold on to its margins, a function of greater revenue per employee and lower headcount growth vis-a-vis revenue growth

Infosys' constant currency revenue growth guidance of 6-8% year-on-year (y-o-y) for FY19 was on expected lines. The marginal beat can be ascribed to a weaker exit in 4Q (0.6% CC) than our expectation (1.5% CC). This implies that the compounded quarterly growth rate (CQGR) will be better if the guidance is met.

To meet its guidance range of 6-8% y-o-y constant currency (CC) revenue growth in FY19, Infosys will have to clock a CQGR of 1.8-2.5% in the next year. We are assuming 7.5% y-o-y CC growth factoring the guidance and incremental revenue from the acquisition. A cross-currency tailwind of 130 basis points (bps) would imply USD revenue growth of 8.8% for FY19.

Net profit grew 2.4% quarter-on-quarter (q-o-q) to Rs 36.9 billion, below our estimate of Rs 38 billion, due to an impairment loss of Rs 1 billion taken in respect of Panaya.

Infosys also cut its FY19 EBIT margin guidance to 22-24% versus the FY18 band of 23-25%. This will largely factor in investments in localised talent, revitalising sales, digital capabilities and delivery staff. The 1% revision amounts to $120 million, and considering that these are investments in people, which will only come gradually, we see the lower end of the margin band as conservative, and expect it to be raised during the course of the year.

The additional $2 billion payout over and above the normal dividend payout (policy of 70% of FCF) will peg the cash returns at a high level (Rs 100/share pre-tax, 8.6% of current market price) for the second year running. This should act as a crucial support for the stock.

Given these developments, we have cut our earnings by around 2% for FY19/20E, factoring in the weaker exit and the marginal profitability decline. Infosys' performance in the recent years has been in line with peers.

The guidance on revenues was on expected lines. However, we believe that the lower end of the EBIT margin band of 22% is conservative, with pricing pressures seemingly tailing off and the share of higher-margin Digital inching up. Our price target of Rs 1,330 discounts forward earnings by 16x. We maintain a 'buy' rating on the stock in the light of the developments.

→ Infosys Q4 Results ←

CEO Salil Parekh to earn a fourth of what Vishal Sikka signed up at Infosys

Infosys gave a low key welcome to Parekh, unlike the aggressive marketing exercise it undertook to welcome Sikka

Salil Parekh will earn an annual salary of Rs 162. 5 million ($ 2.55 million) as the CEO of Infosys, which is a quarter of what Infosys had signed up with his high profile predecessor Vishal Sikka, who quit the firm after three years in turmoil.

The compensation also reflects the reality at Infosys and its chairman Nandan Nilekani who would like the low profile senior executive to execute a vision of focused delivery for customers than over promise and under delivery that would be in contrast with the company's culture.

Parekh, the soft-spoken executive who was poached from global rival Capgemini, will get an annual fixed salary of Rs 65 million and variable pay of Rs 97.5 million that would be compensated based on achieving metrics set by the company. Infosys has also offered stock options worth Rs 97.5 million that would be vested over two years, the company said in its postal ballot that was disclosed in regulatory filings. Pravin Rao, interim MD and CEO has been redesignated as COO.

Sikka, who had a tumultuous three-year stint at Infosys, had signed up $ 11 million package including stock options. However, in fiscal 2017, the last of the three-year term, Sikka earned Rs 451 million ($ 7 million), after he struggled to grow business faster in a volatile business environment and the battle he was facing internally with the entrenched system at Infosys.

Infosys has also spelt out the severance pay terms - half his compensation of the previous 12 months and vesting of outstanding stock options till that period.

The severance pay to Rajiv Bansal, the former CFO, ten times his annual compensation, sparked a controversy over alleged failure in corporate governance norms, which eventually brought the downfall of Sikka and R Seshasayee, the former Chairman at Infosys.

Click Here To Read : Infosys CEO Salil Parekh

Personal attacks continue: Full text of Vishal Sikka's resignation letter

" The distractions that we have seen, the constant drumbeat of the same issues over and over again, while ignoring and undermining the good work that has been done, take the excitement and passion out

Vishal Sikka has resigned as managing director and chief executive of Infosys with immediate effect.

U B Pravin Rao has been appointed as interim-managing director and chief executive, India's no. 2 software services exporter said in a statement.

Sikka has now been appointed as executive vice-chairman.

Here’s the full text of Vishal Sikka's resignation letter.

Over the last few days, since our earlier call, I’ve met Sesh several times, talked to you individually at length, and spent time thinking things thru with Vandana. During this time, one of our employees, Sandeep Karamongikar, died in his sleep, likely of a massive heart attack. He was working on the chatbot frontend in Nia. Also over the weekend, in possibly the greatest demonstration of AI capability ever, a bot built by the researchers at OpenAI (yes, that OpenAI), defeated the world’s best players of DOTA2, a multiplayer online video game, a game where the bot learned to play entirely from scratch. Further demonstrating that the force to automate routine, even advanced, activities is an unstoppable and exponential one. And the Charlottesville incident here in the US demonstrated once again the power of words and silences to cause real damage, or to heal. Read More

Also Read:

Vishal Sikka quits as Infosys CEO, citing distractions and personal attacks

Vishal Sikka quits as Infosys CEO: Hits and misses of his 3-year journey

Vishal Sikka resigns as MD & CEO of Infosys with immediate effect

Not just Cognizant: Other IT firms may hire 40% fewer engineers this year

Even if there were no Brexit or US Elections, hiring by IT firms would have been the same

Fresh graduates out of engineering colleges may find getting a job tougher at large IT services firms this year as India's IT industry struggles with new business models.

Technology services firms have traditionally hired thousands of fresh engineering graduates and trained them to build capacity to handle projects of their global clients. Now most of these entry level jobs can be automated, forcing IT firms to reduce their campus hiring.

So Indian information technology (IT) services firms are likely to hire 40 per cent fewer engineering graduates this year. Tech firms have been witnessing a dip in traditional software services and maintenance business, which earns them a major chunk of revenue, as clients are demanding services on digital technology and cloud. This is freeing up people from repetitive tasks such as testing and low-end maintenance.

Infotech companies such as TCS, Infosys, Wipro, Cognizant and HCL Technologiescontinue to go to campuses, but have offered jobs to 60,000 engineers this year against 100,000 last year.

“Campus hiring dropped by at least 40 per cent from 2015-16,” said Kris Lakshmikanth, chairman and managing director of The Head Hunters India, a recruiting agency for the infotech sector. Industry body National Association of Software and Services Companies last month said growth in overall job creation by the sector was 5 per cent this year.

Infosys, India’s second-largest infotech firm, said it had hired 5,000 people in April-December 2016 against 17,000 in the same period a year ago. Over 9,000 employees were released to other projects because of automation, it added.

Cognizant is likely to ask around 10,000 people to leave as it shifts its business towards digital and consulting, which require skills different from those in traditional services. Read Article Source

Infosys founders raise a stink on governance, question Vishal Sikka's pay

Board told about Sikka's pay hike, generous severance packages, disclosures

Founders of Infosys have flagged concerns over transparency and corporate governance at second-largest software exporter in the country. They have questioned the compensation package of Chief Executive Officer (CEO) Vishal Sikka and the severance package to its former chief compliance officer David Kennedy.

The founders, led by N R Narayana Murthy, have asked how the company would achieve the $20-billion target by 2020, as set by Sikka, in an uncertain global environment, said sources. Last month, Murthy, Nandan Nilekani and Kris Gopalakrishnan raised their concerns with the board.

The current projections are contrary to how Murthy built the company, with his mantra of “under promise over delivery”. Murthy and the five founders had stepped down as promoter-shareholders to ensure that their influence over the company reduced after they moved away from executive roles.

Since taking over as CEO in August 2014, Sikka has pushed the company to adopt design thinking, brought in automation and invested in artificial intelligence platforms, anticipating a shift in customer spending from traditional services to cloud. The shift in culture towards a less-people more-software-driven business approach also has seen several executives quit.

It includes former chief financial officer Rajiv Bansal and Kennedy, who resigned on December 31.

“There is a question mark on disclosures. Infosys was a gold standard in corporate governance. It doesn’t have that premium now,” said a person familiar with the developments.

Since Sikka took over as the company’s first non-founder CEO, several questions have been raised at Infosys that, analysts say, have not been answered satisfactorily. Read More

Automation, digitisation bigger disruptors than Trump: Vishal Sikka

Sikka cautions that most of the work done Infosys can already be done with AI systems

Latest News : Infosys chief executive Vishal Sikka (pictured) has cautioned that the tidal wave of automation and technology-fuelled transformation could make the traditional information technology services obsolete. And, asked employees to shift their behaviour to adopt to shifts in technology.

“The mountains ahead are tall ones. There is no other way but to get there and go... if we don’t, we will be made obsolete by the tidal wave of automation and technology-fuelled transformation that is almost upon us,” Sikka, the first non-founder chief executive, wrote in a New Year letter to employees.

Sikka, whose letter had the subject: ‘Answers are blowing in the wind,’ cautioned that most of the work done by firms such as Infosys can already be done with artificial intelligence (AI) systems.

“Our path forward is very clear – we need to harness the dual forces of automation and innovation. We must embrace automation to become more productive in the work that we do and with the resulting capacity, focus our attention upwards towards innovation, both for ourselves and our clients. The foundation for all of this is our culture, our values and especially our infrastructure for life-long learning,” he said. Read More

Read our full coverage on Infosys

Is it a good time to buy Infosys?

Is it a good time to buy Infosys?

Royal Bank of Scotland’s (RBS’) last week’s decision of not pursuing its plan to separate and list a new bank –Williams & Glyn (W&G) – hit Infosys in trade on Tuesday with the stock plummeting 3% in intra-day deals to its eight-month low of Rs 1,028 levels on the National Stock Exchange (NSE).

Click here to track Infy's stock price movement

Since then, it has recovered and is trading at Rs 1,046 levels, down nearly 1.5% around noon deals. By comparison, the Nifty 50 index was trading lower by 0.7% at 8610 levels, while the Nifty IT index slipped 1.3% to 11,029 levels.

Also Read: I am disappointed, says Infosys CEO Vishal Sikka in a letter to employees

Given the RBS’ decision, Infosys would see a ramp down of around 3,000 resources. The likely impact on revenue could be around $50 million, reports suggest. This comes at a time when Infosys recast its annual revenue guidance for FY17 while announcing its results for the June 2016 quarter to 10.5 – 12% in constant currency (CC) terms, as against a market expectation of 11.5 – 13.5%.

While the decision dented sentiment on Tuesday, analysts had already warned regarding such Brexit-related shocks.

Also Read: Infosys sticks to 2020-vision despite cut in FY17 outlook

Analysts at Nomura, for instance, had cautioned in their July report that the Brexit impact are not incorporated in the guidance and could cause downside risks going ahead.

“While the company has not seen any delay in decision making on account of Brexit, it remains cautious in the near-term given the potential for a high degree of volatility and uncertainty across industries, especially in the financial services which could lead to softer demand in the coming quarters as companies decide on their future strategy regarding the UK and Europe. However, over the longer term, the company sees possibility of additional opportunities,” wrote Ashwin Mehta and Rishit Parikh of Nomura in their July post Q1 result report on Infosys.Read More

5 key takeaways from the Infosys results

5 key takeaways from the Infosys results

It does not take the markets too long to analyse Infosys’ results. Within seconds of announcement of the results, the stock price reflects what the market thinks about it. It was a poor start for Infosys for FY17 with the first quarter number missing analysts’ expectation on the revenue front. The markets showed their disappointment by pushing the stock 9% lower. The June quarter numbers came as a surprise, especially when market was getting complacent on Infosys beating expectations as it did in it last four quarters.

Apart from revenue there are some more disappointments in the quarterly numbers. Here are five key takeaways from the Infosys results.

1. The company reported 2.2% QoQ growth in dollar revenues but a 1.7% growth in constant currency terms which was mainly on account of lower volume growth which grew by 2.2% as compared to 2.4% in the previous quarter. Justifying the lower-than-expected numbers, Infosys CEO Dr. Vishal Sikka said “We had unanticipated headwinds in discretionary spending in consulting services and package implementations as well as slower project ramp-ups in large deals that we had won in earlier quarters, resulting in a lower than expected growth in Q1.”Read More

Infosys has fewer crorepati employees

In FY16, Infosys had 48 employees in India who were paid more than Rs 1 crore in annual compensation, as compared to 111 in FY15

The number of crorepati Infosys employees - those earning Rs 1 crore or more annually - residing in India came down to 48 in FY16 from 111 in the previous financial year.

This could be, said sources, because many of them have moved to the client sites in the US this year, and their remuneration is not reflected in Infosys India's books. A lower bonus paid to senior employees could also be another reason.

In FY16, Infosys stole the limelight with a better-than-expected performance.

According to its annual report for the financial year, the number of employees earning Rs 1 crore or more per annum was 48. These are senior management personnel whose details are disclosed by the company every year "as per Rule 5(2) of Chapter XIII, the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014."

In FY15, the number was 111.

While attempts to reach out to the company to find out the reasons behind this drop could not yield any result, sources in the company said the FY15 annual compensation for certain eligible managerial personnel was higher because of "changes in pay-out model for long-term bonuses". In FY15, a few eligible employees were paid long-term bonuses for three years as compared to just for one year in FY16. Read More

Tech Mahindra pulls out of race to acquire Mphasis

Tech Mahindra has decided to pull out of the race for Mphasis to avoid a bidding war with other suitors.

“Tech Mahindra is no longer contesting to acquire Mphasis,” sources privy to the development told Business Standard. A company spokesperson declined to comment on the matter.

Read Full Article Over Here: Tech Mahindra

Infy will in no way become a product firm: Vishal Sikka

Vishal Sikka, chief executive officer and managing director of Infosys, said on Wednesday that despite the firm’s rapid progress in bringing innovations powered by automation, artificial intelligence, products and platforms, there is no way it would become a product company.

This is because of the fact that the world itself is moving the services way with disruption happening in every segment, he said, while addressing the Morgan Stanley TMT (technology, media and telecom) conference held at San Francisco on Wednesday. Read More

Cognizant rings alarm bell for Indian IT services players

With Cognizant, which has so far defied the trend of moderate growth in information technology (IT) services sector, projecting lower growth in calendar year (CY) 2016, export-dependant Indian companies have a major reason to worry.

The Nasdaq-listed IT services company on Monday said it expects revenue to grow at 9.9–14.3 per cent, one of its lowest ever, and cautioned about spending cuts by the clients in financial services and healthcare sectors.

It has come as a surprise for many that Cognizant, which was known for best growth among its peers, has given outlook whose lower end trails the overall industry guidance issued by Nasscom. For CY16, Nasscom expects IT services to grow between 10-12 per cent, lower than the previous year.