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Infosys to grow at slower pace in FY19; Salil Parekh plans to step up digital play

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Bengaluru: Infosys said revenue would grow below the pace forecast for the software industry, muting expectations for the first full year of Salil Parekh’s CEO-ship even as India’s second-largest software firm aims for a fresh start by shedding the legacy of former CEO Vishal Sikka. The Nasdaq-listed company said it is seeking buyers for two firms — Skava and Panaya — acquired during Sikka’s tenure to build a so-called software plus services model, and will instead look to seal more deals in the growing digital economy. “We have huge strength in digital and agile digital services,” Parekh told analysts on Friday after he presented the company’s annual results in Bengaluru.

“We will execute our strategy around the four pillars of scaling our agile digital business which is today $2.79 billion in revenue,” he added. INKED DIGITAL DEALS WORTH OVER $3 BILLIONThe company will rely on artificial intelligence and automation to win digital deals, reskill employees and hire more locals in markets such as US, Europe, and Australia. Infosys, acquired a US digital and consumer insights agency WongDoody Holding Company, Inc.

for $75 million as it looks to enhance capabilities to offer services to clients who are increasingly shifting their engagement with their customers on smartphones. The company has forecast a revenue growth of 6-8%, which is below the 7-9 % growth charted by industry lobby Nasscom for the software services sector, as Parekh focuses on building a digital business.

It expects margins will be between 22-24% for the year ahead.

The company said it has signed deals over $3 billion last year including $905 million in the quarter to March. “Infosys’ FY19 revenue guidance is in line with our expectations, while margin guidance disappoints a little bit considering its additional investments in digital and setting up onsite delivery centres,” Sanjeev Hota, AVP – Research, Sharekhan by BNP Paribas said in a note. For fiscal 2018, Infosy profits grew 11.3% to Rs 16,029 crore on revenue of Rs 70,522 crore, which grew 3 % over the previous year.

In fiscal 2017, it reported profit of Rs 14,353 crore on revenue of Rs 68,484 crore. At 9 pm Indian Standard Time, American Depository Shares of Infosys issued on Nasdaq had skidded by 8.2% compared to a 0.1% decline in the broader index. The Bengaluru-headquartered company said it has written off $90 million in Panaya on a standalone basis, which is nearly half of the $200 million that it had paid to acquire the Israeli software firm in February 2015.

It acquired Kallidus, which is referred as Skava, for $120 million in April 2015. Both firms combined have been valued at Rs 2,060 crore ($316 million) with liabilities of Rs 324 crore ($50 million) and classified as “held for sale” in its books. INDEPENDENT DIRECTOR Infosys has also named Biocon chairman Kiran Mazumdar Shaw as the lead independent director of the board.

It has dissolved its finance and investment committee, which was headed by independent board member Punita Kumar Sinha. Parekh told reporters that Panaya had changed part of its market focus after the acquisition which contributed to the decision to put it up for sale.

MD Ranganath, chief financial officer at Infosys, was more candid in saying that both firms did not “fully align” with its future strategy. Allegations of wrongdoing in the Panaya deal, including questions over a hefty severance package for former CFO Rajiv Bansal, finally led to Sikka’s exit in August 2017. Within a week chairman R Seshasayee quit the board, leading to the return of cofounder Nandan Nilekani as non-executive chairman.

Nilekani, who found no wrongdoing in the Panaya acquisition, picked Parekh, a former executive of Capgemini to head the company from January.

Unlike Sikka — who hired a number of executives many from his former employer German software maker SAP — Parekh has preferred to harness the existing leadership at Infosys to build his business. In the three months as CEO, Parekh has engaged with employees and clients, and set out what he calls “navigating your next” to engage with clients to adopt digital services. Q4 RESULTSThe Bengaluru-based company said fourth quarter profits grew 2.4% to Rs 3,690 crore and revenue by 5.6% to Rs 18,083 crore.

Operating margins stood at 24.3%.

Infosys had reported profit of Rs 3,603 crore on revenue of Rs 17,120 crore between October and December 2017. Infosys which has cash reserves of $3.04 billion or Rs 19,818 crore, plans to return $2 billion or Rs 13,000 crore to shareholders by February next year, which includes Rs 2,600 crore or $400 million as special dividend.

Ranganath said the firm was generating higher margins in digital deals and is looking to sustain this over the coming months.




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