Some 4 months since I last got involved in one of my new found hobbies of blogging there has been a lot in the news for the company that actually handed me my first offer letter. The company is Infosys. It is a different thing that the date of joining or DOJ has had many delays and finally after about a year I might not be called an Infoscian at all when many of my classmates are going to join and we have received a committed joining date.
There have been 3 quarterly results since the time I have received the offer letter and 2 out of 3 have been much below the stock market and analysts' expectations. The only time when it came out with good results was due to the much needed acquisition of Lodestone and its performance. The news is worrisome because Infosys was once the poster boy of Indian IT's $90 billion industry but has since been overtaken by Tata Consultancy Services (TCS), another great company. But what is more disturbing is that smaller companies like HCL and Cognizant are growing at a much faster pace than Infy. Started by N.R.Narayan Murthy and his colleagues, this company has had the best of talent until recently but is now facing high attrition due to non-hike in payments and no clarity on the future growth.
I had just started analyzing all news in detail and my penchant for the stock markets was growing in my late teens and one company that was on the recommendation list of all brokerage houses was Infosys. And the inquisitive nature I have - which my friends usually blow out of proportion - I decided to analyze the company by myself. As I searched it turned out that this company was nothing short of a course on how to become a successful company. With Narayan Murthy as the Chairman, Nandan Nilekani was then CEO as far as my memory goes, Mohandas was the H.R head, Shibulal who is now the CEO was then head of operations - a role which I consider was the perfect for him. I dont remember Kris' role then. But this was a dream team. Each one was a master in their field. Nothing could go wrong. People across industry lines respected this team for their acumen and knowledge and of course humility. But over the years as per company policy, Narayan Murthy retired and the post was rotated to all the founders - a big disaster if I am asked. As if this was not enough, Nandan Nilekani moved on to become the Chairman of UIDAI, something expected from a person like him putting the nation before the company he founded. And that's when the damage slowly started happening. I truly admire the ethics of the company but from a business point of view ( Gujju blood in me is speaking at this point :P) it is not prudent to give the CEO's post to the co-founders in spite his strengths lying elsewhere. Infosys is so tied to ethics and principles that Mohandas Pai, then HR head was sidelined for the post of CEO after Kris' tenure came towards an end and Shibulal the last co-founder was elected to be the CEO. Though officially everyone has denied it, there have been indirect indications and it makes sense as well. With Shibulal becoming the CEO, all was not lost - Balakrishna was still the Finance Head. His competency is unquestionable in finance and he comes from the old school where aggressive acquisitions are a strict no. But it also ensures that the company will never go bust like Satyam did. But soon he stepped down to make for younger blood and K.V.Kamath, another of my favourites from the finance/economics background, who was inducted as Executive Chairman, seems not too much involved in the day-to-day affairs of the company at least by the public statements made.
For the past few results now, Infy is growing at a much slower pace of roughly 5%, while its peers have grown by 12-13% and even NASSCOM, the industry body representing IT, has said that growth will be 10% upwards. Infosys which till date comes out first with the quarterly results - which sets the tone for stock market enthusiasts like me whether to buy or not a particular stock based on predictions how that quarter will be for others after Infy sets the tone - has been giving weak guidance or revising them downwards consistently attributing the same to weak demands and market conditions. But when its peers can why can't it excel and prove it is the market leader? The reason is simple. In this economically weak world, Infosys charges a premium for its work whereas its peers work on lower margins to get more orders and increase the business volume. This has led to very marginal gain in business for Infy.
Too much bashing now. Let's highlight the good part. Infosys due to its conservative nature has a cash hoard of ₹ 22000 crore. No small deal. Only a few private companies have so much cash reserve and zero debt as far as IT as a sector goes. This has been because Infy has stayed away from paying more in competitive bidding as in the case of Axon which was ultimately snapped up by HCL for $2.3 billion. But it has been over-conservative. With K.V at the helm we can expect the company to use its cash reserves more given that ICICI was built by him by deploying cash even if may involve some risks. Another strength that the company has is the ability to bounce back. Way back in 2000s when the dot-com bubble burst Infy was hit but it came back strongly. On a personal note I predict the turnaround in the next 12-18 months with US economy coming out of the red ( the main business area of Infy) and hopefully more acquisitions by Rajiv Bansal, the current CFO.
Infsosys' strength lies in executing the orders on time and even its competitors have admitted that Infosys never compromises on quality. Well such quality delivery within the stipulated time does come at a cost. As and when companies focus to quality, Infosys will be the first company to be approached. What else can be done? The company, in the interim, can work on lesser margins to get more volumes in this turbulent times. That will be a difficult challenge for the companies playing disruptive pricing game in the market. Infy definitely has the appetite to take part in the game and win because it is debt free and has huge cash while others work on the debt model. Another welcome change would be to see Shibulal back as COO and the CEO be someone made to be a CEO like Nandan Nilekani was. On a lighter note, my friends, notably Saurabh Dwivedi, joining the company will take the company to greater heights. ( he is going to hype me even more after this.) :P
There has been too much bashing of this iconic company but that is what tests the mettle of great companies- how they come out of it and prove to the world why they are the leaders in their domain. Or as Sachin Tendulkar says that the stones thrown should be converted to milestones. Although I too am not convinced with the management talk at present, I am sure time is not far when Infosys regains the crown it has lost.
