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Infosys Technologies says profit is an opinion but cash is real, justifying its huge cash pile.
Large tech companies such as Microsoft and Apple too have a large cash balance, says Infosys Executive Co-Chairman Kris Gopalakrishnan. “Typically, tech companies have large cash balances as the technology industry by nature is highly risky. At Infosys, we have said that the company must have sufficient cash to run the business with zero revenue for one full year, if need be.”
At a cash balance of around Rs 20,000 crore, are there any plans to increase dividend payout ratios?
“Occasionally, we have given special dividends. Whenever we see our return on invested capital or capital employed comes down to the internal ratio we have, we have looked at returning cash to the investors and shareholders,” said Gopalakrishnan, in an exclusive interaction with journalists from Business Line and The Hindu .
A high cash balance is also a sign of efficient collection systems, he said. It is not enough to have net income, it also has to be converted to cash. “We have made sure we have collected what we billed. Our day’s sales outstanding is one of the lowest in the industry. It is around 60 days, calculated from the time we invoice. Typically, the terms will offer clients maybe a 30-day period to pay. Having a 60-day average outstanding is very good,” said Gopalakrishnan. “Profit is an opinion, cash is real.”
The CEO, S. D. Shibulal, chips in. “The net income to free cash flow ratio is 50-60 per cent in the industry. Ours is 80 per cent or more.”
A large cash balance also allows the company to look at acquisitions, adds Gopalakrishnan. But Infosys has not been aggressive on the acquisitions front. Why?
To that query, Gopalakrishnan says, “Acquisitions have to add value, not done because the valuation is cheap. We want to retain people when we acquire a company and make sure we fulfil a strategic objective – such as a geography, service, domain or platform where we want to grow fast.”
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