‘Fit will drive acquisitions at Infosys’

Venkatesh Ganesh Bengaluru | Updated on May 08, 2019 Published on May 08, 2019

Top executive hints at strategic rethink post Panaya row

Infosys, which was in the news for the wrong reasons with its acquisition of Panaya in 2015, will decide on future buys based on their fit with existing service lines, a top company executive told BusinessLine.

According to him, the acquisitions will be done in a manner that will make it easier for everyone to follow. He said the board is extremely supportive of this new strategy.

Apart from focusing on the integration aspect, the management will ensure that key decision-makers in the company after acquisition are from Infosys, especially on the business and finance verticals, he added.

“We will make sure that it (the buy) integrates with our existing service lines. How this will play out is difficult to say; but if we follow these steps, hopefully, we could see to that it is done in a somewhat structured manner,” the executive said.

These statements come in the backdrop of the controversy surrounding the acquisitions made during the tenure of the previous CEO Vishal Sikka.

Infosys, under Sikka, acquired Israeli company Panaya in 2015 for $200 million.

However, a whistle-blower had alleged payment of “hush money” to certain stakeholders. In August 2017, Sikka quit the company and Salil Parekh took over the next year.

Infosys is currently looking at acquisitions in the digital space and in the cloud and cyber-security areas.

“I think we have a good portfolio, and there is always a way to accelerate it. So, we are looking for more acquisitions in the digital space,” the top official said.

Ticking all boxes

He said the company is definitely looking at several areas on the digital side and some other which are more of a mix of digital and core services which are larger in size. The company also does not want to be excessively aggressive on acquisitions.

“They have to make sense, in terms of the price and the culture. Once all parameters fall into place, I think we will do it,” he said.

Infosys has made two small acquisitions in the past year in the digital space across Europe and the US.

Industry watchers believe that the company needs to up the ante. “They have to acquire in digital, and even though it is a bit late, it is better than never,” said Kris Lakshmikanth, CEO, Headhunters India.

However, the acquisitions need to be thought through at a time when margins are coming down.

Aniket Pande and Rajat Gandhi, Analysts, Institutional Equities at Prabhudas Lilladher, are cautious about margin expansion due to higher compensation and continued investments though they are confident about Parekh’s leadership and his execution skills.

Infosys’ margins were at 21.5 per cent in the March-ended quarter, and the management has lowered the guidance to 21-23 per cent for fiscal 2020, from 22-24 per cent in the previous fiscal.

Infosys is also building a business model which is more resilient for the future, independent of what the situations are in the US, Europe or Asia. The company is also accelerating the hiring process with a number of locals being recruited.

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Published on May 08, 2019
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