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Infosys reiterates Vishal Sikka's strategy with strong Q2, company to 'accelerate execution'

Chairman Nandan Nilekani reaffirms findings of independent investigation that exonerated former CEO Sikka in Panaya acquisition. Full report won't be released

Harichandan Arakali
Published: Oct 24, 2017 06:57:29 AM IST
Updated: Oct 24, 2017 05:49:38 PM IST

Infosys reiterates Vishal Sikka's strategy with strong Q2, company to 'accelerate execution'
Nandan Nilekani, Non-executive Chairman, Infosys
Image: Selvaprakash Lakshman

Infosys, India's second biggest software services company, said the direction in which former CEO Vishal Sikka set it, during his three years at its helm, remains relevant and that it will in fact accelerate the implementation of that strategy.

Infosys grapples with an ongoing transition from a company that had been led by its founders to one led by career professionals, of whom Sikka, who quit in August, was the first. The company expects to grow slower during the rest of its current fiscal year that ends March 31, 2018, despite beating analysts' expectations on profit growth for its fiscal second-quarter performance. Its revenue growth was roughly in line with street estimates.

The Bengaluru company, which is currently looking for a new CEO, cut its forecast for full-year dollar-terms sales to between 5.5 percent and 6.5 percent. That is a 23.5 percent reduction from the top end of the 6.5 percent to 8.5 percent range the company projected in April, which it had maintained in July.

"During the quarter, we responded quickly to the management and board changes through proactive communication with all stakeholders minimizing any negative impact to the business and allowing us to deliver growth across all our large industry units," interim CEO and Managing Director UB Pravin Rao, said in a press release on Tuesday, after close of Mumbai trading.

Rao also signalled that the direction in which former CEO Vishal Sikka had set the company on will largely be adhered to: "We continue to focus on executing on the theme of software enabled services and on accelerating growth of our new services portfolio," he said.

The strategies set under Sikka, were "“integral to who we are and how we operate," Rao also told television reporters in a conference. "We don’t see any reason to jettison anything." If anything, the company would "accelerate the execution" of its strategy, he said.

Rao was named to the position in August after then CEO Vishal Sikka quit, only three years into the job, in a long drawn out spat between the company’s first non-founder-led board and founder NR Narayana Murthy. Co-founder Nandan M Nilekani returned as non-executive chairman and is helming the search for the next permanent CEO.

Murthy’s main contention was that there were "governance deficits" with the then board, led by R Seshasayee. Murthy had demanded that the full report of an independent investigation into a large severence payout to former CFO Rajiv Bansal, who quit in 2016, should be made public. He had also cited a whistle blower's allegations that the payout was connected to Bansal’s acquiescence to the $200 million purchase of Panaya, an Israeli software automation company, that Infosys made in 2015.  

"After careful consideration led by our Chairman, the Board reaffirms the previous findings of external investigations that there is no merit to the allegations of wrongdoing," Infosys said in its press release.
Nilekani added: "I believe that all stakeholders acted out of a strong passion for Infosys, wanting what they believed to be the best for the Company and to see it succeed. In light of my review of these matters, I am fully persuaded, as is the entire Board, that the conclusions of the independent investigations are correct."

He added further that the severance payments to the Company’s former CFO "could have been better handled," and that the company has since put in additional measures to improve relevant processes. Infosys, however, will not be making the full investigation report public as it would hamper the company's functioning in the future, the company said in its press release.

Consolidated profits for the three months ended Sep. 30 was Rs 3,726 crore, compared with Rs 3,606 crore for the year earlier period, a 3.4 percent increase. Profits rose 7 percent sequentially against the Rs 3,483 crore number for the June quarter. The company counts JP Morgan Chase, Citigroup, BP PLC, Johnson Controls, Volkswagen, Vodafone and the Association of Tennis Professionals among its clients.

In comparison with Infosys’s reported profits, analysts at Mumbai brokerage HDFC Securities were expecting September quarter profits of Rs 3,551 crore, which would have been a 2 percent increase on the June quarter and a 1.5 decline on the year-earlier quarter.

Revenue, in dollar terms, rose 2.9 percent to $2,728 million for the September quarter. That compared with the $2,748 million estimate by the Mumbai brokerage, which would meant a 3.6 percent quarter-on-quarter growth and a 6.2 percent growth on the revenue for the same quarter last year. The analysts had factored in a 2.6 percent sequential growth in constant currency, and 95 basis points support from net gains due to various currency exchange rate changes.

India’s $154 billion IT and back-office services outsourcing sector got a bit of a breather during the September quarter as the US economy picked up. America’s growth helped provide some respite from negative publicity of the sector’s use of the H-1B visa, and from the inexorable shift towards cloud-based services. Financial services and manufacturing — two of the IT sector’s biggest verticals — saw clients increase spending not only on cloud-based solutions, but even on traditional IT outsourcing.