S. D. Shibulal is among the last of the founding fathers of Infosys who is still at the helm of affairs of the company, as its CEO and MD. But since he took over in August 2011, the ride has been rather rough, culminating in a less-than-ordinary guidance for FY13 which saw the stock tumbling to a new low, the worst in a decade. In an interview with Business Line , Shibulal, 58, explains the reason for the company’s rather dismal performance and how he plans to steer it out of trouble.
According to analysts, the IT sector is no longer a safe haven to invest in. How do you react to this thought?
I don’t know whether, in this volatile environment, there is any sector which is a safe haven. If you look at financial services, telecom, manufacturing or any other sector, every industry is going through volatility and the IT sector is no longer isolated from this situation. It is a reflection of the volatility and uncertainty in the environment and that will continue.
Your Q3 gains have been washed away with today’s announcement.
The growth in Q3 was due to a few factors. Our revenue productivity in the third quarter went up and so did the volume of work. However, in the fourth quarter, the volume of work has actually gone up to 1.8 per cent as compared with 1.5 per cent in the third quarter. Our onsite volume has gone up by 3.7 per cent, which is a reflection of the fact that the deals that we won in the previous quarters have got into execution phase (which means revenues have started kicking in). Sometimes, it takes time for all these things to fall in place. So, we ended up with a soft quarter.
So then, what do you attribute to the free fall of the stock?
Our job is to focus on our business.
But this is the first time in a decade that the stock has fallen to its lowest?
As I said, our focus is on our business and performance, the rest we have to leave to the others.
If you take away the revenues from Lodestone acquisition, the growth is flat.
You should look at a year-on-year number for this. In the beginning of the FY13 quarter, we had given a guidance of 8-10 per cent. Our volume has gone up to 8.8 per cent, in line with the guidance. Unfortunately revenue productivity dropped by 3 per cent and we ended up with 4.5 per cent growth.
Your forecast is based on a very broad range of 6-10 per cent and that is sort of neither being here nor there.
We have gone through a very volatile eight quarters (or two years). So, it makes sense to broaden this range and give a safe guidance. This is not an environment where companies can afford to be unsafe. So, this broad and safe range that we have come up with.
Another first: You have not issued an earnings forecast …
It is also a reflection of multiple things. Since growth is low, our margin comes under pressure and if revenue productivity drops, that adds to the margin pressure. Then we have headwinds due to decisions made last year. Employee compensation is to the tune of $140 million and another $36 million of deferred payment for Lodestone. Also, there are unknowns coming from revenue productivity dropping and a need to do large amount of onsite (foreign geographies) hiring due to lack of availability of visas as a result of over-subscription. We have factored in all these things in our guidance.
But the fact is that the guidance is lesser than Nasscom’s estimates for the industry.
Our business is different as compared with our competitors. Our exposure to discretionary spending (by Infosys’ clients) is double. The industry’s exposure is 17 per cent, whereas we have 33 per cent exposure to this sort of spending by our clients. So, it is an apples to oranges comparison. Due to this, we end up operating in a volatile environment.
In the past you have spoken about increased commoditisation of IT services business. After factoring in this, do you still think there is room for premium pricing?
Even in commoditised play you have to be innovative. You cannot just accept the fact that you are in a commoditised business. We have partnered with companies like IP Soft to create automated services. There is still an option for premium pricing. Having said that, the pricing there is coming down on an average and anything above the average can be premium.
You have set aside $100 million to invest in products, platforms and solutions. Has it come a bit late in the day?
This is to incubate ideas internally and outside. Historically, we have done it without the need for funds. We will use that money to incubate certain ideas internally, move them out or continue inside. Or move them out and fold it back into the company when we need it. It is never late and these are things global corporations do. We are at the right size and right set of strategies to have this kind of fund in place.