The $7-billion plus Indian software services major Infosys is using the current downturn to change its business model and be market-ready when the global environment picks pace. V Balakrishnan, CFO, Infosys, tells PP Thimmaya the depreciating rupee has given them enough breathing space to help the firm tread on a ?superior quality? growth path. Edited excerpts.
Has there been any change in the overall business environment?
The environment is only turning more and more negative. The latest PMI figures of the US show the economy is contracting and same is the case with the eurozone, which showed negative growth last quarter. The two large economies are going through so much of stress and there is no cover anywhere. Even China is slowing down as is the case with India. It is a structural issue and it is going to take some time for the economy to come out of this. We have to live with more uncertainty.
How has Infosys been responding to this situation?
We have to do multiple things. The industry is changing, so we, too, have to change. In the short term, we have to realise that there will be less spending, but the only good thing is that the rupee is still depreciating. It has depreciated by over 20% in the last one year giving us enough breathing time to make all investments in terms of IP, software etc. When the market turns for the good, Infosys will look better.
How is Infosys managing with the philosophy of superior growth and margins in the current climate?
Most parts of the business are getting highly commoditised, so one needs to have a better portfolio of business that will hold us in good stead in the long term. This would include areas such as consulting, IP, product platform etc. We have to slowly change the business mix. If one gets the topline right, the bottomline will follow. It is important to have high quality revenue. Size does not matter in the industry, it is only quality.
How is the deal momentum looking for Infosys?
In this environment, we will not get any long-term deals as customer spending is very short-term focused. It is the smaller deals that are coming into the market. There has been a lot of renewals in the marketplace, which is quite common. Most of the large contracts are with MNC players, but when it comes for renewals it is getting increasingly broken up, giving other players a chance.
What has been the impact on the Indian IT industry since the downturn in 2008?
Unlike other industries our dependance on developed economies is very high. Since 1991, we have seen three downturns. Whatever happens in developed markets will impact us. However, the medium to long-term growth is intact as the annual spending on technology services is $800 billion with India’s contribution being just $70 billion. We will go through such cycles. Every downturn is a good learning lesson for the industry.
Will India become a key market for Infosys?
There are challenges here as the government is the largest investor though their ability to spend is very limited in a low-growth environment. In India, most of the contracts is with the government and the process takes a lot of time. In the case of private sector, they are slowly pitching in as they are more into products and not in customised services yet. However, in the long term India is a good market.
How is the US expansion plans shaping up for Infosys?
It is part of our strategy. As a global company, we want to localise operations and change the mix of business over a period of time. Our cost of doing business will go up, impacting our margins to some extent. We have to pull some other levers and manage it.
Why has there been a lot of buzz of Infosys scouting for a potential future CEO from within the company?
There is an external view and internal view. Internally, we are not even discussing those things. CEO Shibulal has got another two-and-half-years to go and it is something for the board to worry about. Internally, Shibu is running the company and has got his strategy aligned to the board and executive leadership. It is more of the external environment speculating about it.