Infosys CEO SD Shibulal often compares his business to a marathon. ?It?s not a sprint,? he says, a statement that he repeated even while announcing the company?s quarterly earnings on Thursday. But a good marathon runner would admit that one has to exhibit some amount of speed from time to time to win the gruelling race. Infosys, India?s second-largest IT firm, has been running a marathon for the last three decades but in the last couple of years the exertion has started to show. The seat of Infosys CEO, once a very rosy place, is now a hot seat.
Former employees, who know the top management inside out, say that the officials have been averse to taking some tough, pragmatic decisions and conservatism has only grown within the company. Even the advent of KV Kamath as chairman has not helped change the culture of the firm. Founders have a firm grip on executive decisions and they have been deferring some key decisions, just like their clients who have been going slow on opening up their IT purse.
A former senior employee told FE that the top management has got too involved in operational matters and do not think enough about the larger picture. ?They have made some structural changes (like switching the portfolios of board members BG Srinivas and Ashok Vemuri), but these are just cosmetic. The management has to address the declining BFSI and Europe business,? the person said.
In the first quarter, revenues from BFSI and Europe declined by 1.0% and 8.1% sequentially. Infosys has large clients like Bank of America in the BFSI space, but the slowing American banking segment has not helped the company?s cause.
Indian IT firms derive around 40% of their revenues from BFSI and over dependence on this vertical has been an issue. In its golden days, Infosys used to get 50% of its revenues from BFSI, thanks to people like Phaneesh Murthy, who used to control its North American operations. But such dependence is a concern now. The company may do well to look harder at the manufacturing and retail verticals. Manufacturing has recorded the best profit growth over last year at 51%, followed by retail at 47%.
The firm?s reluctance to acquire a target is another worry. Investors have piled on the pressure consistently on executive co-chairman Kris Gopalakrishnan and CEO Shibulal, but they have not cracked yet. Kamath has gone on record stating that he has not put any pressure on the founders to acquire. The $4-billion cash pile continues to remain untouched. But the fact is, the time is ripe as valuations are down. When Shibulal took over, he spoke about the importance of Infosys 3.0, a new version of the organisation. He said 3.0 will deliver high quality growth. But that has not materialised.
Analysts are clearly not impressed. Ankita Somani, IT research analyst at Angel Broking, said the results have been disappointing. ?Infosys scaled down its FY13 yearly guidance and expects revenues to be at least $7.343 billion, a growth of 5.0% year-on-year against expectations of 6-8%. We believe this clearly indicates challenging visibility in the business volumes and management?s future expectation. Overall the results were gloomy with guidance numbers indicating that management is seeing challenges in terms of IT spends from big accounts. The dollar revenue declined 1.1% q-o-q to $1,752 million against expectations of it remaining flat. Also, despite having benefits from rupee depreciation and no wage hikes, the EBIT margin of the company declined by 190 basis point q-o-q to 28%,? she said in a note.